In this series, we discuss some of the complexities to consider when expanding your business across borders, or if you’re looking at multinational investment. There are many general issues, and different countries have very different legislation, regulation and tax regimes.

Here, we review some of the complexities to keep in mind when expanding or investing into United Kingdom.

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Introduction

Ranked 8/190 for Ease of Doing Business, the United Kingdom has long been a global financial hub; almost 60% of firms with a Fortune 500 ranking have their European headquarters in London and the UK funds sector is worth £1.5 trillion. Though Brexit has created a little regulatory uncertainty, the UK remains one of the world’s largest producing countries, with particularly important civil/military aerospace and pharmaceutical industries (currently producing COVID-19 vaccines), and its consumer market is one of the most important in Europe.

The UK contains four different and distinct countries ­– England, Wales, Scotland and Northern Ireland – and all four have slight variations to tax, labour, and regulatory laws. UK-wide legislation is set by the parliament at Westminster (in London). Following devolution, Wales, Scotland and Northern Ireland also have their own parliaments and discretion to control their own economies, education systems, health systems, justice, rural affairs, housing, environment, transport and taxation.

All four devolved administrations work together to contribute to the UK Parliament, and all are committed to the principles of communication, collaboration and coordination.

UK business culture is based on courtesy, politeness, discipline and punctuality.

Opportunities

The sectors with strong future potential include information and communication technologies, biotechnologies, creative industries (music, cinema, gaming, animation, etc.) aviation, and renewable energies. Further, the UK’s lack of infrastructure development in certain regions may also offer opportunities.

The UK’s funds market is one of the biggest in the world, and the UK is rich hunting ground for fund managers. The Investment Association reports that, at the end of 2019, the UK funds market was four times bigger than the UK’s GDP. Statistica reports there were 1,100 Alternative Investment Managers (AIMs) in the UK in 2018. Both of these figures show the UK funds market to be significantly bigger than any EU country.

What’s more – iNews reported in August that, according to figures from FE Fund Info, “The average UK equity fund has returned almost 70 per cent since the [COVID] market lows – twenty percentage points more than the FTSE 100 and five percentage points more than the S&P 500. And that’s the average fund. The really good ones have returned 100 per cent-150 per cent.”

 

FDI

The main investment partners of the United Kingdom (in terms of FDI stocks) are the United States, the British offshore islands (the Isle of Man and Channel Islands – Jersey, Guernsey, etc.), the Netherlands, Luxembourg, Belgium, Japan and Germany. Most FDI flows are directed at; the financial services sector; professional, scientific and technical services; IT trade and repair; and transportation.

With a few exceptions, the UK doesn’t discriminate between nationals and foreign individuals in the formation and operation of private companies. There are no laws or rules limiting foreign ownership and investment in the United Kingdom. However, there are competition laws and regulatory approval may be required for investor-led acquisitions of large UK entities. Banking, insurance, and financial services businesses all require regulatory approval.

Under the Enterprise Act (2002), the government can intervene in certain mergers and recent changes to the law lowered the thresholds for merger review in three specific sectors: artificial intelligence, cryptographic authentication technology, and advanced materials. Further, in April 2021, the National Security and Investment Bill introduced a distinct investment screening regime for companies seeking to gain control of a company or asset in sectors identified by the government as ‘sensitive’. There are also levels of control retained over certain sectors, including: transport, energy, healthcare, defence and the media.

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions only applicable in a short list of sectors. In addition, the Industry Act (1975) allows the UK government to prohibit the transfer of 30% or more of major British manufacturing companies to foreign owners, if such a transfer is deemed against the country’s interests.

Both public and privately funded grants and other forms of business support are available in the UK, mainly aiming to promote businesses investing into regions outside London. There are also tax breaks and support for businesses moving into an Enterprise Zone, including 100% capital allowances on plant and machinery for companies launching in certain regions. Enterprise Zones are available in all four UK countries, and Freeports are also on the cards.

Doing business & establishing a company

All UK companies are registered through Companies House, an executive agency of the government’s Department for Business, Innovation and Skills. Setting up a business takes around 5 days. Forms for all required procedures (incorporation, dissolution, change directors, registered address change, etc,) can be found online, along with guidance on UK regulations and requirements, and sample templates. There is also detailed information on registration and filing obligations for overseas companies in the UK.

Because the UK consists of four separate countries, there are legal differences between the jurisdictions and three separate locations where a company can be registered. England and Wales have shared laws, so are combined; Scotland and Northern Ireland hold their own company registers.

Any company registered in one location has full force and effect in the others, but the company Registered Office/Registered Address cannot move from one country to another. For example, a company registered in Scotland must stay within Scotland; if you register in England then your operations must be in England.

It’s possible to setup Branch offices in different countries of the UK. This allows, for example, a head office in London and operations in Northern Ireland.

There are several different types of company available in the UK, though the majority of firms launch as Limited Companies (Ltd) or Limited Liability Partnerships (LLP).

Type Partners Capital Liability
Private Limited Company by Shares (Ltd) One or more directors. No minimum requirement, though the typical minimum subscribed is £1. The entire capital must be unlocked. Liability is limited to the amount contributed.
Limited Liability Partnership (LLP) OR Limited Partnership (LP) At least two partners. No minimum requirement. Liability is limited.
General Partnership (GP) At least two partners. No minimum requirement. Partners’ liability is joint and indefinite.
Public Limited Company (Plc) One or more directors. Minimum share capital is £50,000 – 25% of which must be paid-up. Liability limited to the amount contributed.
Community Interest Company No minimum. No minimum requirement. Partners’ liability is joint and several.

Funds and financial services companies that come under the purview of the Financial Conduct Authority (FCA) must apply for regulatory approval.

Tax, accounting and regulatory

The UK’s corporate tax year runs from 1 April to 31 March, and financial statements must be prepared annually and submitted to Companies House. Financial statements of domestic and foreign public companies must be prepared in accordance with IFRS Standards, specifically FRS 102 – ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. Companies must have an annual audit.

As previously mentioned, the four nations of the UK have slightly different tax regimes, but the degree of variation is slight – perhaps comparable to other country’s regimes of different states or municipalities. Her Majesty’s Revenue and Customs (HMRC) is in control of the UK tax regime, and tax administration will take some 100 hours per year.

UK resident companies are taxed on their worldwide income. The main corporate income tax rate is 19%, and a diverted profits rate of 25% applies to multinational companies using artificial arrangements to divert profits overseas to avoid UK taxes. The UK has double taxation treaties with many countries.

A non-resident company pays UK corporation tax only on the trading profits of a UK permanent establishment or profits attributable to a trade of, dealing in, or developing UK land. From 6 April 2020, non-UK resident companies (including those who invest in UK property through collective investment vehicles) will be required to pay corporation tax on profits from UK property. Any other UK-source income received by a non-resident company is subject to UK income tax at a rate of 20%, without any allowances.

A Research and Development (R&D) tax credit is available, and a patent box regime is being introduced, allowing companies to apply an effective 10% rate to all profits from qualifying patents.

There are several environmental taxes applicable in the UK, including a Landfill tax, a Climate Change levy, and an Aggregates levy. The UK VAT rate is 20%, though there’s a long list of zero-VAT rated items.

Regulatory rules in the UK are in a long and slow updating process following Brexit, though at this point many regulations only show minor changes (if any). The FCA is the best source to learn of updates to financial markets.

Labour and payroll

The majority of full-time workers in the UK undertake a 35 to 40 hour week, and salaried full-time employees are entitled to a minimum of 28 days paid annual leave (which may or may not include the eight UK-wide public holidays). There are different requirements for those working irregular hours, such as part-time workers, shift workers and term-time workers.

Night time is described in the Working Time Regulations as within the period between 11:00 p.m. and 6:00 a.m. Any employee regularly working for at least three hours in this period is considered a night worker.

Minimum working age for full time work is 16 years (if left school) and 18 years for night work, though part-time work in light agricultural and horticultural can be done from 13 years.

In the UK there’s a National Minimum Wage (school leaving age) and a National Living Wage (age 23 and over), and Apprentices have a specific rate which adjusts after the first year for apprentices over 19 years.

23 and over 21 to 22 18 to 20 Under 18 Apprentice
£8.91 £8.36 £6.56 £4.62 £4.30

There’s no legal obligation to pay for overtime, hence no minimum levels of overtime pay, though the average pay rate must not fall below the National Minimum Wage.

Employer paid contributions total 13.8% on all earnings over £170 per week and are deductible from corporate income tax. This is a National Insurance contribution, which covers unemployment and support allowances, maternity and bereavement benefits. In addition, all employers must pay 3% of an employee’s ‘qualifying earnings’ into a staff pension scheme.

Around 24% of UK workers belonged to a union in 2020. Unions are available for both public and private sectors and, though union membership is declining over time, manufacturing, transport, teaching and distribution sectors are highly unionised.

Banking

All companies registered in the UK require a separate business bank account. Further, the cast majority of payments in the UK are completed via Bank Transfer, or BACS. Very few businesses use cheques or cash for remittances.

There are strict Anti-Money Laundering regulations in place for identity verification for non-residents. Indeed, the regulations are such that the majority of high-street banks (Barclays, Lloyds etc.) either don’t offer business accounts to non-residents, or make the process extremely difficult.

Banking options, though, include top-rated online-only banks, and charges per month vary according to additional services required.

Most UK banks will permit online account opening – including for non-resident company directors – as long as the company is registered with Companies House.

Conclusion

The UK is still finding its regulatory and legislative feet, but is stabilising for businesses post-Brexit. There are some areas still reviewing their policies, and we could still see changes for EU export/import, regulatory monitoring and possibly employment.

The UK remains a key player on the world stage and, as a main hub for some of the largest fund managers and institutional investors, will continue to attract business and maintain its position as a leading financial centre. Research and advice should be collected on UK counties and regions that offer the best opportunities and benefits for investment.

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Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

All information contained in this publication is up to date on 2021. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.