The ABCs of Starting A Business In The UK
The United Kingdom has the sixth-largest economy in the world. For North American businesses, the UK can act as a “gateway” to Europe and Asia. But its economy and geographical location aren’t the only reasons why the UK is a great place to start a business as a foreigner (or for international expansion). Its double taxation agreement with several countries, a thriving immigrant population, and trade relationships with the EU can all benefit a business owner tremendously.
A Foreigner’s Guide to Starting A Business in the UK
There were about 6 million private businesses in the UK (in 2020), but three out of four of them have no employees, i.e., they operate as sole traders. Within the country, London and Southeast England have the highest concentration of businesses, which means you are more likely to find strong competition and higher prices in these regions, but you’ll also get more exposure.
There are four main business entities in the UK:
- Sole Trader
- Limited Liability Partnership (LLP)
- Limited Company
Post-Brexit Business Complication
It’s important to note that a lot has changed since the UK left the EU, especially for European businesses and individuals. Before Brexit, most European businesses didn’t need special permissions and permits to start a business in the UK or to expand their home business to UK territory, thanks to the European Economic Area (EEA).
But now, since the UK is no longer a part of the EEA, the rules are changing. The transition would have been smoother if the pandemic didn’t complicate things for the UK and EU’s economy right after UK’s exit from the EU.
Although the rules for the rest of the world for starting or expanding a business into the UK would mostly be the same, a few things might change. The corporate tax rate, for example, was supposed to be reduced to 17%, but it’s still the old 19% for now.
Steps to Starting A Business in The UK As A Foreigner
There are different processes for expanding to the UK and starting a business in the UK as a foreigner. The following steps are for the latter.
Secure The Right Visa: The first thing you have to do if you want to start a business in the UK is to secure the right visa. There are four options:
- Investor Visa (Tier 1): You’ll need at least £2,000,000, a UK bank account, and the funds must be disposable in the US.
- Start-Up Visa: You can only stay in the UK for two years with this visa, and to get it, you need an endorsement from a UK educational institute or an organization that supports UK entrepreneurs (local connections) and have a uniqueand viable idea.
- Innovator Visa: You need to have a truly unique idea (or an existing business in your country) endorsed by an approved endorsing body in the UK.
- Global Talent Visa: If you already are a leader or a potential leader in digital technology, academia/research, arts, or culture, you can apply for this visa.
Once you’ve secured a visa, you’ll only be bound by the visa’s limitations.
Create A Business Plan: You need to write up a viable business plan and calculate financial forecasts for your business. You might not need to share it with a government entity (depending upon the business structure you choose), but it’s still crucial.
Choose A Business Entity: Choose how you want to register as a business in the UK. As a sole trader, you can choose to start a business under your own name, using your own bank account. Partnerships don’t need to register with the “Companies House,” the entity responsible for forming and dissolving companies in the UK, but they do need to register with the HM Revenue & Customs (HMRC), the premier taxation regulatory body in the UK. Most other entities have to register with the “Companies House”. You can do so online.
The steps after that are typical to opening a business in any other country, i.e., choosing a name for your business, opening a separate bank account and registering for tax (if warranted), understand the labor laws (if you are hiring employees), etc.
In the UK, there is something called Value Added Tax (VAT). If your business sells goods that are not exempt from VAT of over £85,000, you need to get a VAT number and pay the tax. The VAT rate is set at 20%.
How To Expand A Business In The UK
If you already have a business in your home country and you want to expand it to the UK, i.e., open a branch in the UK, there are a few things you need to know.
- You can register a private limited company in the UK online in about 24 hours or open a branch (not protected under UK limited liability benefits), which takes about four weeks.
- To register as a private limited company, you’ll need a UK address, a name, at least one director, and a shareholder (individual or business). The benefit, compared to most other countries, is that the director doesn’t need to be a UK national.
- As a foreign entity (registered in the UK), you can rent out a property or lease a property and modify it for your needs.
- The corporate tax rate is one of the lowest in the G20 companies (19%).
- Opening a business bank account in the UK is a bit complicated. First, the company representative signatory of the bank account must be living in the UK. You’ll also need to submit your business plan and identification of individuals and entities who own 10% or more of the business.
Even if you choose not to register in the UK (not advisable), you will still need to register with the HMRC once your sales cross the VAT threshold.
The UK has had centuries to refine and evolve its corporate laws, structures, and business landscape. The country has well-established practices, a powerful international presence, and a business relationship with a decent number of countries. The transparent corporate establishment laws, a well-run regulatory system, and low corporate tax rate make it an attractive destination to expand to for a foreign company.