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Business formation and entity choice in the UK

What are the most common types of businesses that can be established in the UK?

The two main types of company in the UK are private and public companies. Most companies registered in the UK are private companies limited by shares (LTD). This is the most popular form of business entity for inward investment projects. The shareholders of a private limited company have limited liability while public limited companies are established when securities are listed or offered to the public.

Depending on the type of business and level of investment, foreign-owned businesses may decide to initially set up a Branch business in the UK rather than a separate legal entity. When creating a Branch, consideration should be given to both risk and tax issues. A Branch business is more cost-efficient to establish and maintain, as the UK filing and administrative obligations are considerably less. However, it is mandatory to file the “parent” entity financial statements on public record in the UK. For this reason, most private inbound companies do not choose this option.

The level of corporate tax paid as an LTD versus Branch is the same, so there is no UK tax benefit of one over the other.

A Branch may find it difficult to get registered for VAT and set up a UK bank account, and a UK bank account is required to pay pension contributions (which is mandatory in the UK from day one of hiring domestic employees).

Closing down a Branch is quicker and easier to do versus a subsidiary entity. For a Branch, you must file your final tax returns before filing to close. For an LTD there are a few different options which are typically more time consuming and expensive.

How long does it take to establish a legal entity in the UK?

The incorporation procedure for a UK LTD is an extremely straightforward process. Typically, it takes approximately 24 hours to complete the incorporation of a subsidiary once all relevant documentation has been gathered, and filing fees are £55 + VAT. On the other hand, registering a Branch will take approximately one month, and the paperwork is a lot more complex. Overseas Branches can only be set up after you have opened for business in the UK. They need to be set up within one month. The filing fee is £20 + VAT.

It should be noted that there are no minimum capital requirements under UK company law in establishing a UK company. Most inbound companies who set up a legal entity incorporated with 1 share at £1, which is owned by the foreign parent entity.

A UK limited entity must have at least one Director, but this individual does not need to be a UK citizen.

What other filings are required?

UK businesses do not require a registered agent; however, RSM can act as an agent for tax purposes in order to complete the relevant filings.

RSM can provide an RSM office as the registered address.

An Annual Confirmation statement must be filed annually on the anniversary of the entity formation. This statement confirms the Directors and Shareholders of the entity, as well as any Persons with significant control. This information is filed on the public record.

It is a mandatory requirement for all UK registered companies to file financials with Companies House in accordance with UK GAAP (or acceptable equivalent). In general, the financial statements are due for filing with Companies House nine months after the balance sheet date (or within 21 months of the date of incorporation, if longer, for the first trading period), with financial penalties being issued where these deadlines are missed.

A UK Limited company is required by law to file audited financial statements at Companies House where the audit thresholds are exceeded. The audit thresholds are applied at a group level.

Tax registration in the UK

What are the tax filing requirements in the UK?

Corporation Tax

A company must file an annual corporation tax return. The payment dates are dependent on size but most companies are required to pay their tax liability nine months and one day after the end of the accounting period. For example, a 31 December year-end will have a payment date of 1 October in the following year. Large companies are required to pay in four instalments, two before the end of the accounting and two after. Very large companies are required to pay all four instalments before the end of the accounting period.

The UK follows the OECD guidelines for transfer pricing.

VAT

VAT returns are generally filed on a quarterly basis (i.e. four returns per annum). The return must be filed and paid by the 7th day of the second month following the VAT period of assessment.

Payroll taxes

The UK tax authorities operate real-time reporting for payroll taxes. Employers must submit their payroll data to Revenue on or before the date employees are paid. The return and payment of the taxes are due 22 days after the end of the month.

Payroll tax filings are also required for employee benefits. Employers are required to report to HMRC details of all non-cash benefits provided to employees on a form P11D at each tax year-end. Employers are also required to complete employer stock compensation filings annually where any employment-related benefits in the form of shares, options and securities have been granted.

What is the tax authority in the UK?

HMRC (HM Revenue & Customs) https://www.gov.uk/government/organisations/hm-revenue-customs

What is the process of applying for a tax identification number in the UK and what is it called?

The company will automatically be registered for corporate income tax when it is incorporated. Further details must then be provided to HMRC within three months of the commencement of trade.

All new companies employing UK based employees must also register for employment taxes.

Key contacts 

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Gayle Davies

Partner, FDI Specialist
E: gayle.davies@rsmuk.com

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Mike Sables

Partner, FDI
E: mike.sables@rsmuk.com