The UK offers unparalleled opportunities for businesses to access new markets and expand internationally. It is uniquely placed, with strong US and European connections, and mature, flexible markets. London boasts the world's largest financial centre, and companies benefit from low corporation tax rates, a highly skilled workforce, and a flourishing entrepreneurial climate.
How we can help
We have extensive experience assisting a wide variety of businesses with all aspects of their UK expansion. As a business, we are uniquely placed to offer a bespoke service, covering your accountancy, company secretarial, company and personal tax issues. We can provide a flexible service to suit your business as it evolves over time.
As a founding member of CLA Global, we also have access to an international network of finance experts to ensure a joined-up approach to dealing with both your local and international needs. We pride ourselves on exceptional customer service, tailored to your specific commercial needs and a partner-led approach to ensure the highest quality advice.
Frequently asked questions about UK inbound businesses
What are the key tax issues for UK inbound businesses?
The most relevant tax issues will depend largely on the growth stage, profitability and nature of your business.
For loss-making or early-stage businesses, the focus is usually on cash preservation. From a tax perspective, that often means that priority areas are optimising R&D tax claims and other tax reliefs while minimising any VAT and payroll tax leakages.
For larger, profitable inbound businesses, the focus shifts towards tax risk management, compliance and tax governance. As the business grows and teams expand, it becomes more and more important to have robust controls and processes in place to manage tax risks. Making sure the tax or finance teams have an early awareness of these plans is key to managing the business’s tax risks, both in the UK and internationally.
Key tax considerations may include:
- R&D tax relief: ensuring claims are maximised but robust, minimising the risk of HMRC enquiries, which can be costly and delay repayment of any tax credits
- VAT recovery: ensuring an appropriate VAT recovery method is agreed with HMRC (if necessary) and applied correctly
- Payroll and employment taxes: understanding the obligations for seconded and permanent UK workers, obtaining appropriate clearances and considering reward equalisation
- Transfer pricing and profit fragmentation: ensuring appropriate policies and documentation are in place to justify an 'arm’s length' price for any related party transactions;
- Interest deductibility: depending on how the UK operation is funded, restrictions on interest deductibility may apply and may involve complex interactions with a number of different tax rules
- Efficient cash extraction: this is also important to most businesses, including considerations around applying withholding tax relief and ensuring a ‘future-proof’ and flexible structure
We help UK inbound businesses at all stages of growth to identify and maximise tax opportunities, as well as manage and mitigate tax risks across all areas of tax. Find out more about our business tax services.
Should I incorporate a company or set up a branch for my expansion to the UK?
There are pros and cons to using either a subsidiary company or a branch, and the tax implications of both options will often be an important aspect of the wider commercial decision.
The initial administration involved in setting up a company can be greater than if a branch is established, though a company does offer a greater foothold in the UK and is often advantageous when looking to trade with local businesses.
A UK company is required to prepare and file annual accounts with Companies House and, as the company grows in size, an audit may be required. Although a branch is not required to prepare statutory accounts in the UK, in most cases the business will need to publish the parent company accounts on Companies House.
Profits of the UK subsidiary or allocable to the UK branch should be subject to corporation tax and the amount of UK tax due is likely to be similar in either case. There may, however, be local tax considerations: for example, in relation to the use of losses and cash repatriation. In particular, your business may need to confirm whether or not double tax relief is available on branch profits taxed in both the UK and the resident territory. The UK does not impose withholding tax on dividends paid by a UK company and therefore profit extraction for a UK subsidiary is rarely an issue.
Whichever route is taken, your business will still be required to register with Companies House in the UK, as well as with HMRC for tax purposes.
Find out more about our International tax services.
What are they key UK thresholds that I should be aware of?
There are several UK thresholds to be considered as your business grows in the UK. These are the most important:
UK audit thresholds
A UK company is likely to require an audit if at least two of the following limits are exceeded in a year on a group basis:
- annual turnover of more than £10.2m;
- assets in excess of £5.1m; or
- more than 50 employees on average.
UK VAT thresholds
Broadly, a business is required to register for VAT in the UK if its turnover that is subject to VAT either:
- exceeded £85,000 over the last 12 months; or
- is expected to exceed £85,000 in the next 30 days.
UK transfer pricing thresholds
The UK has a minimum limit under which most UK companies are not subject to the transfer pricing rules (although there are some exceptions). This limit is, broadly, applied by considering all group companies and aggregating the figures as appropriate. In order to fall below the threshold for transfer pricing purposes, the group must have fewer than 250 employees and either:
- annual turnover less than €50m; or
- balance sheet assets totalling less than €43m.
There are various exemptions and exceptions to the above limits to consider, and guidance should always be sought to ascertain whether or not your business has any registration or reporting requirements in the UK.
Find out more about our transfer pricing services here.
Should I set up my business in the EU rather than the UK due to Brexit?
Ultimately, commercial factors will be the primary influence when deciding where to grow your business and the UK remains a very attractive option for expansion.
Although regulatory restrictions may require your business to establish a presence in the EU, expansion to the UK remains an attractive option for many businesses. The UK is an excellent location for attracting investment and corresponding tax reliefs are strong for both investors and investees.
The UK has an excellent double tax treaty network with jurisdictions across the world to help prevent double taxation for businesses operating in multiple territories, and to allow profits to be distributed to and from the UK without triggering tax charges. The UK does not enforce withholding tax on distributions so a UK subsidiary can often be very tax efficient from a profit extraction perspective.
There are also excellent tax incentives for innovative companies in the UK. If your business undertakes research and development (R&D) activities, it may qualify for R&D tax relief. The R&D tax relief rules are complex but generally allow companies undertaking qualifying activities to obtain significant additional tax deductions or, in some cases, cash credits from the UK tax authorities, based on expenditure related to these activities.
Under current legislation, medium-sized profit-making companies can obtain an additional 130% deduction for qualifying expenditure in calculating profits chargeable to corporation tax. For loss-making companies, or companies where this deduction then exceeds taxable profits, a tax credit for 14.5% of any excess can be claimed in the form of a cash payment from HMRC. For larger companies, a 13% tax credit is usually available on qualifying expenditure.