Establishing a Business in the UK 2013-14

8/12/2019 Establishing a Business in the UK 2013-14

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Blick Rothenberg LLP

Establishing a Business in the UK


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Blick Rothenberg LLP16 Great Queen Street

Covent GardenLondon WC2B 5AH

United Kingdom

T:+44 (0)20 7486 0111

F:+44 (0)20 7935 6852

E:[email protected]

W:www.blickrothenberg.com
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02

03 Introduction

04 What creates a tax presence in the UK?

06 Registering an establishment or subsidiary

07 Accounting and related ling requirements

08 Corporation tax

10 Losses

11 The UK as a holding company location

12 Research and development tax incentives

14 UK Patent Box

15 Personal taxation

17 Share (stock) options

20 Social Security

22 Value Added Tax (VAT)

24 Our team

25 Blick Rothenberg

This booklet is for guidance only and advice should be sought to consider specic circumstances.

Contents


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03

The United Kingdom (UK) has always been a major trading

nation and partner for many other countries around the world.

The countrys economy has evolved from being predominantly

manufacturing based, to one that now is at the forefront of new

developments in technology and biosciences.

The development and expansion of the European Union (EU) has increased the UKs

attractiveness due to its excellent communication links to the rest of Europe.

Where a company is looking to do

business with the UK, the scal

implications are neither complicatednor overly burdensome. This booklet

concentrates on providing practical

information that will inform and make

it easier for overseas businesses to

establish a presence in the UK.

We will therefore address what creates

a taxable presence in the UK, the

procedures involved in setting up acompany here, tax rates, implications

for individuals working for a company,

and other related issues.

Introduction


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04

What creates a tax presence in the UK?

UK legislation provides that a UK corporate entity will be

subject to UK tax. Furthermore, an overseas entity trading in

the UK is likely to be subject to UK tax as well, but principally

only on its activities in the UK.

The issue to be considered is whether an activity creates a UK tax liability and, if

so, what type of entity the overseas company should establish.

The right entity trading with, orin the UK

Where a company is trading withthe UK (i.e. has customers in the

country to whom goods or servicesare sold), there is unlikely to be a needto establish an entity and complywith various related regulations (thereis one exception in relation to Value

Added Tax which is considered onpage 22).

Where a company is trading in theUK, there are a number of factors tobe considered.

In many instances, an overseasbusiness will initially wish to researchthe market to see if it makescommercial sense to establish apresence in the UK. This may eitherinvolve making frequent visits to theUK (this booklet does not consider

any work permit issues) or havingsomeone based here on a morepermanent basis. The role of thisindividual will be to research themarket, maybe make initial contact

with potential customers, sendout marketing literature and othersimilar promotional activities. In taxterms, these are generally known aspreparatory or auxiliary activities andcommonly do not give rise to anycorporate tax implications. There is,however, a need to register as anestablishment which is consideredin the next section on page 06.Local tax advice should be sought todetermine whether the activities of theestablishment fall outside the scope ofUK corporate tax.

Alternatively, the overseas companymay decide at the outset that thereis an existing or potential market forit and would proceed to establish

a presence in the UK, which wouldhave a corporate tax presence. Insuch circumstances the overseascompany needs to consider whetherto register as a taxable establishment

(formerly referred to as a branch) ora subsidiary.

Establishment or subsidiary

We consider the procedures forregistering an establishment orsubsidiary on page 06. This sectionconsiders the issues overseascompanies need to consider inchoosing the correct entity.

An establishment is not a separatelegal entity from the parent companybut merely an extension operatingunder the laws of another jurisdiction.

As such, it does not provide thelimited liability that a subsidiarycompany does. If the nature of the


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business is such that it is importantto ring-fence liabilities arising in aspecic jurisdiction, the subsidiarywill afford the safer option.

The other issue to consider iswhether it is important for theoverseas company to be seen tohave a UK presence. Althoughan establishment and a companyprovide a UK presence, theperception is that a UK company is alocal business with a greater sense ofpermanence. If this is important froma commercial perspective, you maywish to establish a subsidiary.

The costs of maintaining anestablishment or subsidiary needto be taken into account and these

have a correlation to the level of lingrequirements, which are consideredin the following sections.

Finally, is the group sensitive to thetype and level of information that ispublicly available about its businessin its own jurisdiction? If it is, thesubsidiary will be the better option.

This is also considered in greaterdetail in the following section.


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06

Registering an establishment or subsidiary

Establishment

The process of registering anestablishment involves the overseascompany ling a form giving detailsof its shareholders and directors. Italso needs to submit with the forma certied copy of its memorandumand articles of association (companybylaws or equivalent). If theseare not in English, they need tobe translated. The form needs toprovide details of the UK addressfrom which business is going to beconducted. The process of registeringan establishment can take up tothree weeks but can be less if thedocuments mentioned above arereadily available.

Subsidiary

A subsidiary is also very easy toestablish. There are no statutoryconsents that need to be obtainedprior to setting up the company.

A company can be formed bysubmitting a form providing theconsent of at least one person who isprepared to act as a director. There isno requirement to formally appoint a

company secretary, although there isstill the requirement for the functionsof a company secretary to beundertaken. This function is normallyoutsourced.

It is normal for a company to have atleast two directors to allow for greaterefciency in managing the company,should one director be absent.

There is no requirement for an ofcerto be resident in the UK.

There is no requirement for thecompany to have a minimum amountof issued share capital.

Such a company is normally formedwith one 1 issued ordinary share.Paid up capital can be increased atthe time that the company is formedor later, depending on commercialrequirements.

The name chosen for the company

must not be the same as, or similarto, an existing companys name. Ittherefore makes sense to register acompany as soon as a decision ismade to establish a UK presence.
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Accounting and related ling requirements

Establishment

If the law under which the parentis registered requires publication ofaudited accounts, a copy of thoseaccounts needs to be led in the UK.If the parent company has no suchrequirement, it must prepare anddeliver for ling its accounts, preparedin accordance with the requirementsof UK company law.

The accounts that are led areavailable for public inspection in theUK. This can sometimes be an issueif the parent is not used to having itsnancial information made public.In such circumstances, the parentshould either form a subsidiary ratherthan register an establishment or, in

its home jurisdiction, establish anothercompany which then registers the UKestablishment. When the accounts ofthe parent company are then led, itonly contains information relating tothe establishment activities.

Subsidiary

A subsidiary needs to prepare andle annually, a copy of its accountsprepared in accordance with UKcompany law. The accounts,once led, are available for publicinspection.

The accounts need to be led withinnine months of its nancial year-end.

A company can choose its year-end,with almost all choosing one thatcoincides with that of the parentcompany.

An audit of the UK companys nancialstatements is required if the group asa whole exceeds two of the following:

a. revenues of 6.5million per annum

b. gross assets of 3.26million

c. 50 employees

If the UK company does requirean audit, the cost of maintainingthe company compared to anestablishment will be slightly higher.Remember though, that a company

does provide the protection of limitedliability.


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08

Corporation tax

Tax rates

The current rates of corporation taxare noted in table 01.

Taxable prots

The level of taxable prots will, to

an extent, depend upon the tradingmodel adopted (the comments thatfollow apply to both an establishmentand a company). The UK has transferpricing legislation which dictates thattrading between connected partiesneeds to be on an arms-length basis.

This is to stop international groupsmanipulating intra-group transactionsso that prots always ow to thecountry with the lowest tax rate.

If the business model were suchthat the UK entity is to provide justmarketing and technical support, afee would be charged to the parentfor the services provided. It is this fee,less related costs of providing theseservices and maintaining the entity,that would be subject to UK tax.

If the UK entity is structured so thatit can enter into contracts with third

party customers in its own right,it is more likely to have a buy/sellarrangement.

In this case, sales to third partieswill be recorded within the UK entityaccounts.

Intra-group and third party purchasesand other costs of sales will be offsetagainst this, as will all overheadsand other intra-group and third partycosts.

In almost all circumstances, it is goingto be necessary for the UK entity toundertake a transfer pricing study toprove that the pricing between theparent and its UK presence is whatwould be agreed by parties acting onan arms-length basis.

Corporation tax paymentand return

The corporation tax liability needsto be paid within nine months of thecompanys accounting year-end.

There are provisions for certain largecompanies to pay taxation on accountbefore the year-end.

A company is dened as large forpayment on account if either:

a.its taxable prots exceed 10million(or as appropriately divided by thenumber of associated companies inthe worldwide group);

or

b.it was a large company in thetwelve months preceding the periodand is also large in the current period.For these purposes, large is denedas having taxable prots of 1.5millionor above (or as appropriatelydivided by the number of associatedcompanies in the worldwide group).

The corporation tax return needs tobe submitted within twelve months ofthe year-end. A computation of thetax liability will also be submitted withthe return.

Having registered an establishment or subsidiary we need to

consider what level of corporate tax liability may arise in the

entity. For this, one needs to determine both the applicable

rate of tax and the level of taxable prots.


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Table 01

Corporation tax rates

year to 31 March

2014 2013 Taxable Prot

% %

(note 1)

Small company rate 20 20 0300,000

Intermediate rate 23.75 25 300,0011,500,000

Full rate (note 3) 23 24 Over 1,500,000

Notes:1. The prot limits are reduced where there is more than one company under common

control in the worldwide group. If there is a parent and a subsidiary under common control

the limits are all divided by 2.

2. The rate of tax applicable to an establishment will be considered by reference to the

combined prot of the establishment and the overseas parent. This is only for purposes of

determining the appropriate tax rate and only the establishment prots are taxable in the

UK.

3. The full rate of UK corporation tax is due to decrease to 21% for the year to 31 March

2015 and to a single rate of 20% from 1 April 2015.


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Losses

If an establishment incurs a loss,this could be available for offsetagainst parent company prots, in theparents jurisdiction. Additionally, theestablishment losses can be carriedforward in the UK for offset againstfuture taxable prots.

If a subsidiary is formed and it incurslosses, these can be carried forwardindenitely for offset against futuretaxable prots of the subsidiary,providing they are from the sametrade.

These losses, however, are generallynot available for offset against theparent company prots.

The decision on whether to register an establishment or a

subsidiary could be affected by the anticipated results of the

business in its formative stages.


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The UK is an attractive location for establishing a holding

company, one that conducts business in the UK, but which

is also utilised to expand into other parts of the world.

The UK as a holding company location

If the UK company was utilised tohold shares in other companies, andsuch shares were subsequently sold,the resulting gain is exempt fromtax providing the company held atleast 10% of the shares and it wasa trading company, or was part of atrading group before and after thetransaction.

The UK company can also act asthe holding company which eitherforms establishments/branches orsubsidiaries in other parts of theworld. The wide network of doubletax treaties that the UK has enteredinto means that withholding taxes ondividend payments from overseas

jurisdictions to the UK parent will beminimised.

Virtually all dividends received by theUK parent, whether in the UK or fromoverseas, are exempt from UK tax.

The UK itself does not levy awithholding tax on dividends paidto its shareholders, whether UKor overseas based. Furthermore,because of the network of doubletax treaties, the parent company willnot suffer double taxation in its own

jurisdiction when it receives dividendsfrom its UK subsidiary.

All of the above has made the UK avery attractive location for forming aholding company.


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Research and development tax incentives

There are two schemes depending on

the size of the company. A companyqualies for the small and mediumcompany scheme if it has: fewer than 500 employees; and either an annual turnover not

exceeding 100million Euros or abalance sheet total not exceeding86million Euros.

Where a company is a member of agroup, the holding company and allcompanies in the group must together

meet this denition.

Small and medium sizedcompanies (SMEs)

SMEs can claim a tax deductionfor 225% of their qualifying R&Dexpenditure. For companies whichhave tax losses, an R&D tax credit canbe claimed. This is a cash repaymentfrom HMRC of up to 24.75 for every

100 spent on R&D.

Expenditure qualifying for the R&D taxrelief: the cost of staff directly involved in

the R&D work; 65% of the cost of independent

externally provided workersengaged by the company to workon the R&D project;

the cost of software and

consumable items such as fuel,power and water; and 65% of the cost of subcontracting

specic elements of the R&D workto an independent third party.

The R&D work must not besubsidised by grants and must notrelate to R&D subcontracted to thecompany by another person. If anyof these conditions are not met, thecompany may qualify for the large

company rate of deduction.

There is no requirement for thecompany to own the intellectualproperty rights arising from the R&D.

Large companies

Historically, large companies couldclaim a tax deduction for 130% oftheir R&D expenditure. Following a

period of consultation, this has nowbeen replaced by an Above The Linecredit (ATL). The ATL equates to10% of the companys qualifying R&Dspend, and after tax is a net benetof 7.7%. The ATL for loss-makingcompanies may also be repaid as acash credit, capped at the level ofpayroll taxes incurred in respect ofR&D employees during that year. Any

excess is then carried forward as a

credit for the following year. A largecompany can opt into the new regimeas of 1 April 2013 but cannot thenchange back to the old regime. From1 April 2016, all large companies willmake their R&D claims using the ATLprocedure.

Qualifying expenditure has the samecriteria as the SME regime, above.

Where an overseas parent company

subcontracts the R&D work to itsUK subsidiary, the latter will onlyqualify under the scheme for largecompanies.

For both schemes, qualifyingexpenditure on R&D work in a 12month period should not be capitaland should relate to the trade ofthe company. In addition, capitalallowances of 100% are available

on expenditure on capital assets,excluding land, used for R&Dactivities.

The claim is included in the corporatetax return and must be made withintwo years of the end of the accountingperiod in which the expenditure wasincurred.

The UK government provides some signicant tax

incentives to encourage companies to undertake research

and development work (R&D).


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Companies who have R&D worksubcontracted to them are in someinstances able to qualify for the largescheme and there is a separate reliefavailable to companies involved invaccine research.

Denition of R&D

HMRC and the Department of Tradeand Industry have issued someguidance on the meaning of R&D fortax purposes. Broadly, for an activityto be considered as R&D it shouldaim to achieve an advance in scienceor technology through the resolutionof a scientic or technologicaluncertainty. An advance in science ortechnology includes work which: generates scientic or technical

knowledge; creates a process, material,

device, product or service whichis new to the eld; or

appreciably improves somethingwhich already exists throughscientic or technological change.

The R&D should not be somethingwhich is already available or couldbe made available by a competentprofessional working in the relevanteld.


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UK Patent Box

The Patent Box will allow companies to elect to apply a

10% rate of corporation tax to all prots attributable to

qualifying patents, whether paid separately as royalties or

embedded in the sales price of products.

Who will it benet?

Companies that receive patentroyalties, sell patented products, oruse patented processes as part oftheir business.

What are the benets?

Prots qualifying for the Patent Boxare partially excluded from taxableprots. The effective rate of tax willbe 10% from 1 April 2017. Thebenet is being phased in from 1

April 2013 so that approximately33.9% of the adjusted prot isexcluded, rising to 50% from 1 April2017.

Which patents will qualify?

Patents granted by the UK

Intellectual Property Ofce (IPO)and the European Patent Ofce, aswell as regulatory data protection(data exclusivity), supplementary

protection certicates (SPCs) andplant variety rights.

The Patent Box will apply to newand existing IP as well as acquiredIP where further development hasbeen made to the IP or the productwhich incorporates it.

How will the income subject tothe 10% rate be calculated?

There is a three step process:

Step 1:Split the companys protsbetween those qualifying for thePatent Box and other prots. Thiswill include all prots from the saleof the patented products, licenceand royalty fees from the patent,sales of the patents, infringementdamages, compensation, etc. for

the patent. In addition, where themanufacturing process is patentedthen a notional royalty can becharged and treated as income

from the patent. The ratio ofqualifying income to total income isused to split the prots.

Step 2: Deduct a routine returnon certain specied costs such aspersonnel and premises costs. Thisis intended to reect the fact thata business would expect to makea prot in the absence of IP rightsand is calculated as a cost plus10% of those costs.

Step 3: Deduct a marketingassets return. For small claims (i.e.


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Personal taxation

Basic principles

As a general principle, if an individualis resident in the UK in any tax year,he/she will be subject to UK taxlaws. In certain circumstances onealso needs to consider the personsdomicile.

The UK tax year runs from 6 April tothe following 5 April. A reference to a2013/2014 scal period refers to thepersonal tax year from 6 April 2013 to5 April 2014.

Residence

A Statutory Residence Test is usedto determine whether individuals aretreated as resident or non-resident

in the UK. The test is in three partsand involves some complexity, but insummary:

An individual will automatically betreated as non-resident in the UK inthe tax year in question if they meetany one of the following tests: they were UK resident in any one

or more of the previous three taxyears and spend fewer than 16days in the UK; or

they were not UK resident in anyof the previous three tax years andspend fewer than 46 days in theUK; or

they left the UK for full time workabroad.

An individual who does not meet anyof the automatic overseas tests will beautomatically UK resident in the taxyear in question if they meet any oneof the following tests: they are present in the UK for at

least 183 days; or they have a UK home available

for at least 90 days during a time

when they have either no overseashome or an overseas home inwhich they spend fewer than 30days; or

they work full time in the UK.

Where an individual does not meetany of the above, the sufcient tiestest noted below could still makethem resident in the UK: UK resident family; and/or

substantive UK work; and/or available accommodation; and/or more than 90 days spent in the

UK in either or both of the previoustwo tax years; and/or

more days of presence in the UKthan in any other country.

Domicile

A persons country of domicile isbroadly the country that they considerto be their permanent home. Theconcept of domicile is quite distinctfrom that of residence. A country ofdomicile is sometimes referred to asthe persons homeland. Even if youhave not lived in your homeland formany years, this does not prevent aperson from being domiciled there.

Taxation of employment incomeof non-UK domiciliaries

If a person is resident in the UK,he/she is liable to UK tax on thetotal income from an employmentif the duties of that employmentare performed at least partly in theUK. This applies whether or not the

income is remitted to or paid in theUK.

However, if the employee has aseparate employment with a non-UKresident employer, the duties of whichare performed wholly outside the UK,the individual will be liable to UK taxonly if the income is remitted or paidto the person in the UK.

An employee coming to work inthe UK will be liable to UK tax onthe part of the employment incomerelating to duties performed in the UK,wherever paid. If the employee worksoutside the UK, employment incomefor that work is generally taxed onlyon the amount remitted to or paidin the UK for the rst three years.It is important to get bank accountstructuring right and HMRC requires arelevant overseas bank account to benominated.

If a non-domiciliary who has beenresident in the UK for seven out ofthe last nine tax years wants to retainthe benet of this status, he/she mustpay a 30,000 annual charge. Forthose non-domiciliary who have been


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resident in the UK for 12 or more ofthe last 14 years, the annual chargeis 50,000.

Taxable income

Taxable income includes all incomeand benets. The rates of personaltaxation are shown to the right in

table 02, together with the level ofpersonal allowances. These areamounts that each individual is ableto earn before becoming liable totaxation.

Detached duty relief

Where an overseas employeeis seconded to the UK for less

than two years and provided theUK is regarded as a temporaryworkplace then UK tax relief isavailable for accommodation, traveland subsistence costs during theassignment. This is regardless ofwhether the employee personallyincurred the costs or the employerfunded them. (Employer fundedexpenses would normally betaxable).

Table 02

Personal tax rates

& allowances

% Band of Taxable

Income ()

Year to 5 April 2014

Tax free allowance 9,440 *

20 132,010

40 32,011150,000

45 Over 150,000

Year to 5 April 2013

Tax free allowance 8,105 *

20 134,370

40 34,371150,000 50 Over 150,000

* Income of more than 100,000 sees the personal allowance reduced by 1/2 of income

over limit.


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Share (stock) options

Share incentive schemes can often bean attractive part of an individuals totalremuneration package.

The UK has certain approved schemeswhich provide considerable taxadvantages to the employee.

There are, however, pitfalls as well as

reporting obligations. This is an area ofconsiderable complexity which cannotbe addressed within this booklet.

The following section, on pages18-19, summarises the types ofschemes available. However, detailedadvice should be sought as soonas consideration is being given toestablishing a scheme or grantingoptions under an existing scheme.


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Share (stock) option schemes

Enterprise ManagementIncentive Scheme (EMI)

A company granting EMI optionswill be required to have a permanentestablishment in the UK (or asubsidiary with a permanentestablishment in the UK).

Outline For options granted afterJune 2012, up to 250,000 of optionsper employee (but restricted if CSOPoptions also held - see below).Options must be capable of beingexercised within ten years of grant.Options can be granted at a discountfrom prevailing share values.

Income Tax If granted at a discount,this will be subject to Income Tax

when options are exercised (PayAs You Earn (PAYE) and NationalInsurance Contributions (NIC)can apply to this element) and ifrestrictions apply, there may be furtherIncome Tax charges when sharesare sold, or restrictions lift, otherwiseno Income Tax or National InsuranceContributions on grant or exercise.

Capital Gains Tax (CGT) CGT ongain when shares sold, deductionfor any value charged to Income Tax.CGT will be payable at either 18%or 28% (depending on level of gain).Shares acquired via EMI options onor after 6 April 2012 will benet fromEntrepreneurs Relief (even where lessthan 5% of shares held), reducing theeffective rate of tax to 10%.Who can Any number of employees,

providing total value of EMI optionsgranted is no greater than 3million.Company (or group) must havegross assets less than 30millionand fewer than 250 employees pergroup company or for a standalonecompany. Shares must be issued byparent company.

Her Majestys Revenue & Customs(HMRC) No approval, but necessaryto notify HMRC of option grants underthis scheme (certain requirements tobe met).

Company Share Option Plan(CSOP)

Outline Up to 30,000 of options

per employee, exercisable betweenthree to ten years from grant. 30,000= total value of options as at date(s) ofgrant. Options should be granted atprevailing share values.

Income Tax Can avoid PAYE & NIC.No Income Tax charge on full amountwhen the employee exercises theoption.

Capital Gains Tax CGT will be

payable at either 18% or 28%(depending on level of gain), or for 5%holdings by directors or employees intrading companies may be taxed at10% on gains up to 10million.

Who can Not available foremployees holding 25% or more ofshare capital. Company has some

discretion over which employeesparticipate.

HMRC Requires HMRC approval.(Various requirements to be met).

Savings Related Share OptionPlan (SAYE options)

Outline In conjunction with monthlysavings contract, savings of 5 to250 per month can be accumulatedto purchase shares on exercise ofoptions (after three, ve or sevenyears). Options should be granted atprevailing share values. (Maximumannual value = 3,000).

Income Tax Can avoid PAYE & NIC.

No Income Tax charge on grant orwhen the employee exercises theoptions.

Capital Gains Tax CGT will bepayable at either 18% or 28%(depending on level of gain), or for 5%holdings by directors or employees intrading companies, may be taxed at10% on gains up to 10million.

Who can Must be available to all

employees on similar terms. Notavailable for employees holding 25%or more of share capital.

HMRC Requires HMRC approval.(Various requirements to be met).


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Share (stock) option schemes(cont.)

Unapproved Share OptionScheme

Outline No limit on value of optionsgranted to employees. Options canbe exercisable at any time. Optionscan be granted at a discount fromprevailing share values if required.

Income Tax Can be subject toPAYE & NIC. No Income Tax chargeon grant. Income Tax charge whenexercised and if restrictions applythere may be further Income Taxcharges when shares sold orrestrictions lifted.

Capital Gains Tax CGT will bepayable at either 18% or 28%(depending on level of gain), or

for 5% holdings by directors oremployees in trading companies,may be taxed at 10% on gains up to10million.

Who can Company has fulldiscretion over which employees mayparticipate.

Phantom Share Scheme

Outline Bonus paid to employeesbased on increase in value of shares.(No shares actually provided toemployees).

Income Tax PAYE & NIC will apply.Income Tax charge on full amountwhen paid to employee.

Capital Gains Tax No CGT (as noshares received).

Who can Company has fulldiscretion over which employees may

participate.

HMRC No approval required.

Share Incentive Plan (SIP)

Outline Shares held in trust foremployees. Company can offer upto 3,000 shares (free shares).Scheme can allow employees to

purchase further 1,500 shares(partnership shares) - using incomebefore tax & NIC. Company canmatch these with further free shares(matching shares) - up to two foreach share employee acquires.(Maximum shares = 7,500 perannum).

Income Tax Can avoid PAYE & NIC.No Income Tax charge on acquisitionof shares. Income Tax charge if

shares are withdrawn from trustbefore ve years.

Capital Gains Tax No CGT on valueof shares on withdrawal from trustafter ve years. CGT on gain whenshares sold (if previously held in trustfor full ve years: base cost = valueon exit from trust). Taxed at either18% or 28% (depending on level ofgain) (a 5% shareholding is highlyunlikely).

Who can Must be available to allemployees on similar terms.

HMRC Requires HMRC approval.(Various requirements to be met).Can be expensive to set up and run.


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Social security

Social security, otherwise known asNational Insurance (NI) in the UK, ispayable by both the employer andemployee.

The current rates of NationalInsurance contributions by theemployer and employee are shownto the right in table 03.

An employee on secondment to theUK can claim exemption from UKemployer and employee NationalInsurance contributions if theymeet certain conditions and remainemployed in a country that the UKhas a social security agreement with.(See the list of relevant countrieson page 21). Where an employeeis seconded from a non-agreement

country such as Australia, Chinaor India, then they are potentiallyexempt from paying NationalInsurance contributions for only therst 52 weeks of the assignment.

Table 03

National Insurance rates

year to 5 April 2014

Rate

Employer Up to 7,696 0%

Over 7,696 13.8%

Employee Up to 7,748 0%

7,74941,444 12% Over 41,444 on excess 2%


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Reciprocal agreements

The UK has a social securityagreement with the followingcountries. These agreements allowoverseas employees to potentiallyclaim exemption from UK employeeand employer National InsuranceContributions:

All members of the European

Economic Area(this includes

Austria, Belgium, Bulgaria,

Cyprus, Czech Republic,

Denmark, Estonia, Finland,

France, Germany, Greece,

Hungary, Iceland, Italy, Latvia,

Liechtenstein, Lithuania,

Luxembourg, Malta, The

Netherlands, Norway, Poland,

Portugal, Republic of Ireland,

Romania, Slovakia, Slovenia,

Spain, Sweden & Switzerland).

Barbados

Bermuda

Bosnia-Herzegovina

Canada

Croatia

Israel Jamaica

Japan

Jersey/Guernsey

Macedonia

Mauritius

Montenegro

New Zealand

Philippines

Republic of Korea

Serbia

Turkey

USA

An employer must apply for aformal certicate of exemption ineach instance. The agreements

only allow exemption for a certainperiod, typically up to ve years. Eachagreement works differently thereforefurther advice should be sought withregards to specic countries.


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Value Added Tax (VAT)

If the above threshold is exceeded inany 12 consecutive monthly period(or the threshold is expected to beexceeded within the next 30 days), aUK established business must notifythe UK tax authorities and register for

VAT. It must then charge and accountfor VAT on the supply of all goodsand services made in the UK, unlessthey are specically zero rated or

exempt. The standard rate of VAT inthe UK is currently 20%. There is alsoa limited range of goods and servicessubject to the reduced rate of 5%.

Where a registered business incursVAT on the purchase of goods orservices in the UK it is able to recoverthis VAT from the tax authorities.

At the end of every quarter, thebusiness calculates the amount of

VAT it has charged to its customersas well as that which it has paidto its suppliers. The net amount,depending on whether more hasbeen charged or paid, is eitherremitted to the tax authorities orclaimed back. Therefore, VAT isultimately only a cost to privateindividuals, unregistered businesses

and businesses which make exemptsupplies.

An overseas business not establishedin the UK cannot take advantageof the 79,000 annual threshold. Ifsupplies of goods physically locatedin the UK, or certain services deemedto be supplied in the UK, are madeby non-established businesses,

then registration is legally requiredwhatever its sales.

There are a number of importantissues that overseas entities lookingto establish a business in the UKneed to be aware of:

a. Goods and services supplied toa parent company based outsidethe European Union (EU) if the

UK entity established by the parentsells and delivers goods to theparent there is no VAT chargeable asexports are zero rated for VAT. If theUK entity provides services such asconsultancy, technical support andmarketing these are also not subjectto VAT.

b. Services supplied to a UKbusiness customer an overseascompany, not having its ownpermanent establishment in theUK, does not have to register for orcharge VAT as long as it is makingthose supplies from outside the UK.

The VAT is accounted for by thecustomer under what is known asthe Reverse Charge procedure. The

exception to this rule is the supplyof certain electronically suppliedservices to private individualsbelonging in the UK. Under thisscenario a UK VAT registration maybe required.

c. Goods supplied to theUK customer an overseascompany, not having a permanentestablishment in the UK, does not

have to register for and chargeVAT provided the UK customer isimporting the goods into the UK. Ifthe customer is expecting to takeownership of the goods after theyhave been imported into the UK, theoverseas company may have to pay

VAT at the point of importation thenregister in the UK in order to recover

VAT is a sales tax. It is chargeable by businesses if they

are making supplies (sales) above a certain threshold. The

current registration threshold for a UK established business

is 79,000 per annum.


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the VAT paid at the border. Onceit has done this, it will then haveto charge VAT on its sales even ifinvoiced by the overseas companyas the goods will now be deemedto have been physically supplied inthe UK.

The need for the overseas company

to register for VAT described abovedoes not necessarily require it toincorporate a UK company or branchas the overseas entity may itself be

VAT registered. This will dependupon the issues discussed earlierin this guide and not just becausecertain supplies of goods or servicesare made in the UK.

d. Supply of goods and serviceswithin the European Union anentity registered for VAT in the UKdoes not have to charge VAT on thesupply of most goods or services tobusinesses in other EU countries.

The VAT is accounted for by the EUcustomer under the intra-EU rules.

An overseas company establishedoutside the EU can often sufferUK or European VAT before it is itrequired to register for VAT in the

UK or the wider European market.This could be in relation to costsassociated with business trips(hotels, conferences, etc.) or maybeexhibitions attended as participants.

This VAT can be reclaimed under aspecial provision whereby a claim is

submitted to the tax authorities in thecountry where the expenditure hasbeen incurred.

Where a business does registerfor VAT it can reclaim VAT on mostgoods and services purchasedprior to registration - provided thegoods are still on hand at the time

of registration and the services weresupplied no more than six monthsprior to registration.


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4

Our team

Bob Rothenberg MBEAsia/Pacic

+44 (0)20 7544 8888

[email protected]

Nilesh ShahAmericas/India

+44 (0)20 7544 8866

[email protected]

Melissa ThomasAmericas

+44 (0)20 7544 8938

[email protected]

Colin LehmannFrance/Italy

+44 (0)20 7544 8833

[email protected]

Steven BruckGermany/Austria/Switzerland

+44 (0)20 7544 8970

[email protected]

Simon WagmanSpain/Israel

+44 (0)20 7544 8828

[email protected]
mailto:bob.rothenberg%40blickrothenberg.com?subject=mailto:bob.rothenberg%40blickrothenberg.com?subject=mailto:nilesh.shah%40blickrothenberg.com?subject=mailto:nilesh.shah%40blickrothenberg.com?subject=mailto:colin.lehmann%40blickrothenberg.com?subject=mailto:colin.lehmann%40blickrothenberg.com?subject=mailto:steven.bruck%40blickrothenberg.com?subject=mailto:steven.bruck%40blickrothenberg.com?subject=mailto:simon.wagman%40blickrothenberg.com?subject=mailto:simon.wagman%40blickrothenberg.com?subject=mailto:simon.wagman%40blickrothenberg.com?subject=mailto:simon.wagman%40blickrothenberg.com?subject=mailto:melissa.thomas%40blickrothenberg.com?subject=mailto:steven.bruck%40blickrothenberg.com?subject=mailto:steven.bruck%40blickrothenberg.com?subject=mailto:colin.lehmann%40blickrothenberg.com?subject=mailto:colin.lehmann%40blickrothenberg.com?subject=mailto:nilesh.shah%40blickrothenberg.com?subject=mailto:nilesh.shah%40blickrothenberg.com?subject=mailto:bob.rothenberg%40blickrothenberg.com?subject=mailto:bob.rothenberg%40blickrothenberg.com?subject=


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Blick Rothenberg LLP

Blick Rothenberg is a leading UK accounting and tax

practice specialising in helping overseas companies

establish a presence in the UK. Based in Central London,

the practice has 28 partners and directors and around 160staff with exceptional experience and expertise in all the

major nancial disciplines. We aim to make the process of

establishing and maintaining a UK presence by an overseas

entity as easy as possible.

We can assist with the correct tax structure and entity formation, as well as

all year-end requirements such as audit, accounts and tax ling. We also have

considerable expertise in advising overseas nationals seconded to work in the

UK (www.blickrothenberg.com).

We currently act for over 600overseas companies and havealso recognised the need to assist

them manage their UK presence.To this end, our wholly ownedsubsidiary, BRAL Limited, providesa full outsourced accounting andadministration service. BRAL can

administer invoicing, debt collection,expense payment, managementaccounts, European VAT reclaim, etc.

(www.bral.com).

If, on the other hand, you are anoverseas business with operationsin a number of different territories,

Fluency Solutions Limited canprovide a centralised solution to thechallenges of international expansion

(www.uencysolutions.com).
http://www.blickrothenberg.com/http://www.bral.com/http://www.fluencysolutions.com/http://www.fluencysolutions.com/http://www.bral.com/http://www.blickrothenberg.com/


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www.blickrothenberg.com

Electronic copies of this publication are also

available in German, French, Italian, Spanish

and Dutch. Please visit our website or let us

know which version you would like by emailing

[email protected]

Blick Rothenberg LLP is authorised and

regulated by the Financial Conduct Authority

to carry on investment business.

2013/14 editionLast updated 04/13

Documents

Establishing a Business in the UK 2013-14