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Setting up a business in the UK – what choices do you have?

Are you a foreign national wanting to carry out business in the UK? That’s a positive step. After all, the UK is one of the largest economies in the world. In terms of GDP, it’s the sixth richest country with one of the highest wealth per capita. With a stable economic system and a diverse consumer market, for many businesses, including hopefully yours, the UK is a good location. Setting up business in the UK is not as difficult as you might think. In this article, we’ll look at some of your options for setting up in business in the UK.

What’s the best business entity for setting up in the UK?

Your first decision will be one of your most important ones – choosing the right business entity. Get this right, and you’re more likely to find yourself with a business you can run and finance effectively. You’ll also keep your tax bill low and, should things go wrong,  you’ll be able to protect your own personal assets.

Your principal options or setting up in the UK are:

  • Company (Ltd or PLC)
  • Branch
  • Partnership (normal or LLP)
  • Sole trader.

Most often, people choose the Limited Company option – but not always. In certain situations, branches, partnerships or simple sole trader businesses are more appropriate. The decision as to which route to take is not always easy – it can often be quite subjective.

Here at AccountsCo, when we work with clients, we structure the decision around six important considerations –

  • aspirations for the business
  • the businesses’ financial needs and obligations
  • the substance of the principle relationships
  • taxation of the business and the individuals
  • simplicity, cost and flexibility of running the business
  • ease of opening a bank account

We’re going to look at each option in a little detail.

But first, before deciding which entity is best for you, make sure you understand if you’re doing business with or in the UK. If it’s the first, you might not need to set up a UK entity at all!

Companies – Limited Companies and PLCs

There are two main types of company that are used by businesses –

  • Private Limited Liability Companies (Ltd)
  • Public Limited Liability  Companies (PLC).

Most people set up Ltd Companies because they are cheaper to run and require less administration than PLCs.

Companies provide a good option for people who want to create a business separate from themselves. The principal features of a company are:

  • Companies are distinct legal entities from the people that own and manage them.
  • The ownership and management of companies are easily transferable. The business can  continue, even once the founders have left.
  • Having independent legal status makes raising finance easier and protects the company’s owners from the businesses’ liabilities.
  • Possibly on the negative side – from an administrative perspective, companies are relatively complex and cumbersome to run.

Branches

As an overseas company, instead of setting up a separate company in the UK, you can set up a branch. This would be an intrinsic part of the overseas company, without separate legal status. Branches aren’t companies and don’t need directors or shareholders. Setting up as a branch would make your operation relatively simple to run. There can also be tax advantages, especially in the  early stages of UK trading.

However, remember that there’s no legal distinction between the branch and your overseas company. This means that your overseas company is responsible for the branch’s debts. Also, it can make things like getting insurance and opening a bank account difficult.

Partnerships

If you and one or more other people get together to form a business, you might choose the Partnership option. You will be working together closely – so you must choose each other carefully. You need to consider numerous possibilities. For example, in a two-partner business, what if one partner leaves or becomes unwell? The Partnership could collapse.

Partnerships can be flexible. The rules that govern how partnerships work can be tailored to the situation. Another difference from companies is that partnerships are ‘tax transparent’. This means that your partnership won’t be taxed. Instead, the profits will flow straight through to you and your fellow partners. Each of you will then pay tax according to your personal situation.

The basic principle of Partnerships is that all partners are equal – they share profits equally and have equal rights to capital etc. However, many partnerships don’t work like this. To make the rules of the Partnership clear, they need a partnership agreement.

There is an alternative form of Partnership – Limited Liability Partnerships (LLP).

Limited Liability Partnerships

Limited liability partnerships (LLPs) are like companies. As an owner (partner or member), liability is limited. Shareholders’ liability is limited to the nominal value of their shares. LLP members’  liability is limited to the amount they agree to pay if the LLP needs to be closed. Like normal partnerships, LLPs are tax transparent.

Sole traders

If you set up a business working for yourself and not as a company, your business will be automatically classified as a ‘sole trader’ business. This doesn’t have separate legal status from its owner. Like partnerships, sole traders aren’t taxed. Instead, profits pass through to you, the owner. You’ll then pay tax according to your personal circumstances. You will also be personally responsible for your sole trader business’s debts.

Can I change my mind?

You always have the option of changing from one entity to another. The most common switch is from an unincorporated structure (such as sole trader) to an incorporated structure (such as a company). This is usually straightforward to achieve.

It’s less common to change from an incorporated to an unincorporated structure, like from a company to a partnership. But it’s certainly possible.

Helping you to set up business in the UK

Here at AccountsCo, we’re well placed to help you with setting up in business in the UK. Our start-up services, include a proud knowledge of UK tax matters and company legislation. We’ll give you all the guidance and support you need.

Find out more. Get in touch, and remember  – we’re here to help.

Are you a foreign national wanting to carry out business in the UK? That’s a positive step. After all, the UK is one of the largest economies in the world. In terms of GDP, it’s the sixth richest country with one of the highest wealth per capita. With a stable economic system and a diverse […]

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