London, as famous as it is around the world, is also a booming hub for businesses, especially start-ups and SMEs and also for business expansions. The city itself is a place for new opportunities for the ones who look to thrive and grow. In the context of business, it is a business hub which connects Europe and other regions together.
The United Kingdom encourages and promotes entrepreneurship, with millions of self-employed company owners, sole traders, and freelancers. The processes and documentation for how to start a business in the UK aren’t immediately evident to the budding entrepreneur, though.
Whether you’re starting a business or thinking of expanding your existing business to London, the main decision you need to take before anything else is to know what options are available and how? We are hoping to give a glimpse of what’s required through these series of blogs.
As a business hoping to start in London, you need to have a thorough knowledge of the business options and as to which might be the best option for you going forward. A business can select out of the 3 options that’s present at the London market right now. They are,
- UK trading entity (Limited Company, Limited Liability Partnership, Sole Trader, Partnership)
- UK establishment (commonly referred to as a branch)
- Trading directly from overseas
- Other establishments
Each option is different from the other and has its own pros and cons to go about. Let’s dig deep into these options further.
UK trading entity
A UK trading entity is the most common choice for foreign companies who are looking to create a serious offering within the UK/European marketplace. Out of the trading entities available (Limited Company, Limited Liability Partnership, or a Sole Trader), the limited company corporation is the most popular.
Limited Company (Ltd)
In the Uk, setting up a limited company is a well-known and trusted method of doing business. It’s quick and easy to set up (usually within 24 hours) without the need for any resident director or shareholder, and shows a commitment to the market, which potential consumers and staff appreciate. This business type is a separate legal entity from the people that run it. Limited companies are incorporated through registration at Companies House and need at least one director and one shareholder. Shares in the company cannot be traded publicly.
- Structure: Private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested.
- Pros: Less personal financial exposure; Favorable tax regime; Ability to work for corporate clients
- Cons: Administrative and regulatory demands are heavier; Annual accounts and financial reports must be placed in the public domain.
Limited Company (PLC)
PLCs differ from limited companies in that their shares may be traded publicly. You need to have a minimum share capital of £50,000, with at least 25% paid prior to start-up.
Limited Liability Partnership (LLP)
This partnership agreement involves neither partner being personally liable for debts that the business can’t pay. This partnership requires a written LLP agreement and must register with Companies House, the UK’s registrar of companies.
- Structure: Some or all partners have limited liabilities, and exhibit elements of partnerships and corporations.
- Pros: Flexibility can be incorporated in members’ agreement; Advantages of limited company and partnership combined.
- Cons: Profit taxed as income; Partners must disclose income; LLP must start to trade within a year of registration – or be struck off.
If you want to work as a self-employed person in the UK or run a business on your own, you can become a sole trader. As a sole trader, you can keep all of your business profits. You must make your own arrangements to pay income tax and National Insurance. You are personally liable for all business debts. Freelancers in the UK are also classed as sole traders. To work as a freelancer in the UK, all you need to do is to register as self-employed and make sure that you pay the right amounts of tax and National Insurance.
- Structure: Exclusive owner of the business, entitled to keep all profits but liable for all losses.
- Pros: Low cost; easy to set up; Full control retained; Very little financial reporting.
- Cons: Full liability for debt; Pay more in tax; Lacks credibility in the market.
This business type involves two or more individuals (or companies) setting up together, with responsibility shared equally between partners. Profits are also shared equally, with each partner paying tax on their share and jointly liable for debts and losses. This structure is often suitable for small businesses.
- Structure: Between two or more individuals who share management and profits.
- Pros: Same as Sole Trader structure, but with more heads; more potential to raise finance.
- Cons: The above, affecting all partners; Can be messy to wind up.
A UK establishment is the parent company’s official representation in the UK, and it is registered with the UK tax authorities as well as Companies House. It has no special status and is regarded as a subsidiary of the parent corporation, exposing the entire worldwide operation.
Unlike the registration process for a UK trading entity, the registration process for a UK establishment is fairly complex, requiring the submission of certified/notarized documents relating to the parent company, its business (including financial data), and its officers, all of which are publicly available.
The parent company’s financial reports must be filed in the UK on an annual basis (even if they are not required to be publicized in the foreign region), notwithstanding the fact that the UK accounting results are reported separately for tax purposes.
Because corporation tax liability is determined by the parent company’s performance, it will only be able to benefit from the low profits rate of corporation tax if the parent company’s results are below the thresholds. Losses may be countered within the parent firm, allowing opening losses to be relieved more quickly.
Also known as an offshore company. In limited cases where there are a handful of large customers, trading directly from the home country may be suitable. Thus, there will be no liability to UK corporate taxes provided no UK establishment is created. The company is registered, established, or incorporated outside of the UK. Offshore incorporation is a straightforward process in popular offshore financial centers and tax havens around the world.
However, where sales are being made in the UK, the foreign company may need to register for Value Added Tax (VAT). Registration will depend on several factors, such as whether the company is selling goods or services, and where they are based.
Anyone employed by a foreign entity, but based in the UK must be paid through a UK payroll. If there is no physical presence, it may be possible to avoid employers’ National Insurance contributions which are calculated at 13.8% of the gross salaries of your employees.
This company type isn’t very common in the UK. It involves shareholders having joint unlimited liability for business debts, meaning they can be covered with personal assets in the event of the business assets not meeting debts.
This is a UK business type that exists to invest any profits made to meet charitable, social, or community objectives rather than to distribute among shareholders. Social enterprises are structured similarly to limited companies and include charities, cooperatives, and community interest companies (CIC).
This is an unregistered, unincorporated form of non-profit organization that can include voluntary groups, small community groups, and sports clubs.
If you want to set up your business at London, UK, contact Kloudac Global
Call: +971 5043 53515 / +94 777 870 464
KLOUDAC Global is a dedicated expansion of KLOUDAC, a recognized accounting firm with branches in Dubai, London & Colombo with 15 years of service experience. KLOUDAC Global mainly focuses on back office accounting with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, Recognized accounting software, and more.