Setting up a UK Company

The Essentials

Why incorporate in the UK

Besides the low corporate tax rates (now 19% since April 2017), there are number of reasons why setting up a limited company in the UK makes a lot of business sense. That’s why so many foreign startups have chosen the UK in which to set up a base. There are no requirements for a company to have their trading activities located within the UK. Many companies now are UK incorporated but controlled abroad.

Easy to incorporate
It’s a matter of filling out several details online, and a wait of several hours before you can have your own registered UK Company. No solicitors required. No need to be in the UK to register and in government registration fees. Shareholders do not have to be UK citizens. No minimal investment required. Its possible to set up a UK company with one shareholder and one director. If you are interested in incorporating see our incorporation service for further details.

English
The UK has long been an established commercial centre for business people from various backgrounds. Common language together with an advanced service industry is what makes the UK a popular choice of location in which to establish a business.

Window to Europe
Although no longer part of the EU, trade with Europe through a British company is much easier than from outside of Europe. Import of goods within the EU is generally easier to administrate than from outside Europe.
Strategically, the UK is geographically well placed as a world wide distribution base.

Prestige
As the financial capital of Europe, offices in London look good on a letterhead. Marketing a UK based startup may also be vastly easier when raising capital in US and Canada.

UK Tax in brief

Corporate Tax
Although not itself a tax haven, Corporate tax in the United Kingdom today stands today at 19%, making it a tax-attractive corporate base from which to launch a new business. Income is taxed on a company’s worldwide profits. There are several corporation tax relief incentives now available for companies. Research & Development expenditure (R&D) is allowable at 130% of costs. Capital allowances and investment allowances are allowable up to 100% on most fixed asset expenditure.

A company must file its accounts and pay its taxes 9 months following the end of its accounting period. Large companies with annual profits of more than £1.5m must pay their taxes in instalments. A company does not have to have a reporting period ending in December but may choose any month as its reporting period end.

Some countries have anti-avoidance laws relating to controlled foreign companies. A company that is incorporated overseas, say UK, but is controlled from the US, would fall under the US’s “Controlled Foreign Corporations” laws. Effectively, this negates schemes engineered to avoid tax by incorporating in a country with a lower tax rate. The rules are complex and vary in different jurisdictions.

VAT

Currently, businesses making taxable supplies below £85,000 do not have to register and charge out VAT on their sales. However, it would often make sense to register even before this limit is reached. An example would be if the company is selling predominantly B2B supplies where the customer would not suffer VAT. The VAT on UK purchases would still be recovered.

Personal Tax
Generally, non-resident directors being paid by a UK company for work carried out outside the UK are not taxable under the UK tax system whilst duties carried out within the UK are, in many instances there will be a £12,500 tax free “personal allowance” available. This is largely dependent on the existence, or otherwise, of a treatise between the UK and the foreign country. If salaries are taxable in the UK, tax will be administered through the Pay-As-You-Earn (PAYE) system and deducted at source along with National Insurance where applicable. For more information visit our webpage Non-Residents.

Dividends
A UK company receiving dividend is not taxed on that income. A UK subsidiary paying out dividends is exempt from withholding tax when paying out to shareholders overseas.

The above is a brief summary and each business must be assessed on its own. We strongly advise seeking professional advice before taking any action.

If you are interested in forming a company or starting a trade through a different structure see our STARTUP INCORPORATION PACKAGE