We are seeing a lot of American businesses coming to the UK right now, so we have summarised below the frequently asked questions that US organisations have been putting to us.
With remote working now becoming a regular way of working, we are often asked if a physical presence in the UK is even necessary.
The UK government has invested in ensuring that the UK is a place that welcomes and supports businesses and those investing from overseas. The process of setting up a business here is a simple and quick process. We have and are able to incorporate a new UK entity in under 48 hours.
In normal times, you will find that you require a UK bank account, and most UK banks do require you to have a UK resident Director. It’s therefore key that you consider and agree the best structure to suit you and your business needs.
What are the best ways to get a physical presence in the UK?
1) Set up a UK subsidiary
2) Buying an existing UK business.
What do I need to know about setting up a UK subsidiary of an American business?
What will the UK subsidiary need to file?
All UK companies must file their annual accounts with Companies House within nine months of the end of an accounting period. Additionally, a confirmation statement must be filed with Companies House every 12 months (within 28 days of the anniversary of incorporation).
We are well versed in accounting under IFRS and UK GAAP rules.
How will the profits from the UK subsidiary be taxed?
The UK subsidiary will also need to file an annual Corporation Tax Return (Form CT600). This requires filing with the UK tax authorities (HMRC) within 12 months of the end of the accounting period, with any Corporation Tax due on the UK profits, payable within 9 months of the accounting year end.
How can I get the price right for intra-group transactions?
Setting the right price for transactions between group companies is not straightforward and is an issue which tax authorities globally are increasingly taking a keen interest in. We have worked with several UK subsidiaries on this. The UK’s transfer pricing legislation details how transactions between connected parties are handled and in common with many other countries is based on the internationally recognised arm’s length principle. It is however worth noting that there is an exemption that will apply for most UK Companies if your business is small or medium sized.
What do I need to know about VAT?
Value Added Tax, or VAT is the tax you charge on the sale of goods and services when your turnover in the UK exceeds £85,000. It is an indirect tax because it is collected by businesses on behalf of the UK Government and usually reported and paid over on a quarterly basis, after offsetting any input VAT suffered on any purchases of vatable goods or services for your business.
We can assist you with the preparation and filing of your returns under Making Tax Digital (MTD).
What are the differences between US and UK employment?
This is a key area where the US and UK differs. Employees have the most extensive rights under U.K. law. People are considered employees if the employer has control over the work, there is a mutuality of obligation, and there is nothing inconsistent with an employment relationship.
Whilst we are not employment lawyers and would recommend that you seek legal advice, we can guide you through the issues around National Insurance, the National Minimum Wage, Pay As You Earn (PAYE) system, and the Auto-Enrolment pension scheme that operates in the UK.
How will my employees be taxed?
The employees UK tax position will depend on three key factors:
• Domicile and
• Where employment duties are carried out
If you undertake employment duties in the UK and the US, it is common to have different contracts of employment to keep overseas income out of the UK tax regime. However, the UK authorities consider the practice of dual contracts to be highly suspect and have tightened up the law relating to them in the past few years, so advice must be sought in this area.
The double tax treaty between the UK and the US is designed to eliminate double taxation however there are elements of the double tax treaty which does not prevent this.
More recently, with people working remotely from home, it is now possible to work from another country however care should be taken as the employee may find they fall within the UK tax regime without even realising it.
With our ‘one stop shop’ approach, we can advise on the employees UK tax position, how to structure their tax affairs to minimise paying tax in the UK and calculate and submit any tax returns to HMRC on their behalf.
What is the impact on employees’ social security (National Insurance (“NI”) in the UK)?
Broadly, people working in the UK make NI contributions to pay for certain state benefits, including the state pension, until they reach their normal retirement age. The top rate of NI for individuals is 12%-14%. Employers make NI contributions at 13.8%.
The employer is responsible for collecting the NI contributions.
It may be possible for employees to continue to pay social security contributions in the US instead. However, this area can be quite complex and requires specific advice.
What about premises?
The pandemic is having an effect on property everywhere and the UK is no exception. We can help guide you in your negotiations with landlords or if you are looking to purchase the property outright. We can also prepare and file your Annual Tax on Enveloped Dwellings (ATED) form which is an annual charge based on the value of residential property held by Companies and Partnerships in a UK dwelling.
What do I need to know about acquiring an existing UK business?
As with any acquisition it will be vitally important to do your due diligence. We would bring the insight into the UK market, and be able to benchmark the performance of your target against its UK competitors.
How Goodman Jones has helped US businesses coming to the UK:
In addition to providing a turn-key service for businesses looking to set up in the UK, we have advised on some key issues such as:
• Help provide support and tax advice in the respect of a sale of a UK subsidiary of a US parent, as well as due diligence on UK acquisitions.
• Produced management accounts to facilitate easy decision making across currencies.
• Assisting a US company with the conversion of its standard US employment contracts to a UK-compliant equivalent, thereby helping mitigate unknown exposures to penalties that incorrect contracts could trigger.
• Transfer Pricing studies regarding services to the UK subsidiary.
• VAT compliance and advice.
• Company Secretarial support and associated services including provision of a registered office.
• Resolving tax implications of US staff coming to the UK to train British colleagues.
• IFRS and Group Reporting.
• Share incentive schemes and tax planning for UK employees.
• Tax efficient group structuring
You can read more about our services to US companies and our international credentials here.
We are part of the Department of Industry and Trade’s UK Advisory Network and work with many UK subsidiaries of US parent companies.
As part of the GMNI network we work closely with our sister firms in Boston, Chicago, LA and New York.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.