Setting up in the UK
Avoiding technical and regulatory pitfalls
The UK is a premiere destination for international inward investment. Have you maximised your
advantages and avoided all the potential pitfalls?
If you are contemplating establishing a business in the UK Have you considered your business model?
you will probably already have researched the market and
The UK tax position will be affected by whether the parent
discovered the many opportunities that exist. It is these which
continues to act as principal.
have made the UK a premiere destination for international
inward investment. In 2008, the cumulative ?stock? of foreign
Have any transactions between related parties been
investment in the UK was the third highest level of FDI stock
considered and documented by means of a transfer
Such a transfer pricing study is required for the majority of
The UK enjoys a relatively favourable tax regime. There are,
companies setting up in the UK. This can rarely be approved
however, a number of tax and regulatory issues which you
in advance but must be prepared and retained, to be available
should consider. To ensure that you take maximum advantage
as and when HM Revenue & Customs (HMRC) may require it.
of opportunities you must avoid the potential pitfalls, which
may impact on your business.
Are you obliged to operate a PAYE payroll deduction
In the following we set out a checklist of some of the issues
An obligation to operate a PAYE (pay as you earn) system can
that we suggest any business looking to operate in the UK
arise when you employ even only one employee. This may
should consider as early as possible:
be the case even if the employee is paid outside the UK and/
or many of the activities are overseas. PAYE may also apply
Do you, or will you, have a UK permanent
if you do not have a UK permanent establishment but send
establishment with UK taxation liabilities?
someone to work for a UK employer. Sometimes an employee
This can often happen in circumstances which have not been
may have to apply these rules himself. Self-employed status
planned or foreseen. Any substantive activity, even if it is quite
claimed by a representative in the UK will often be challenged
limited, can result in a taxable presence.
by HMRC and requires careful consideration.
Should you operate in the UK as an establishment,
limited partnership or limited company?
Each form of entity has corresponding obligations, advantages
* Source: UK Trade & Investment, ?UK Economy at a glance?, March 2010 (ref. UNCTAD:2009)
Are you sending any employees to the UK for less Share schemes
If you are going to grant options to employees, careful
than two years?
planning is necessary to reduce the tax cost for both the
There are special opportunities for tax-free benefits for
individual and the employer.
employees from overseas seconded to the UK. This must,
however, be carefully planned.
Is the company undertaking any research and
Are expatriate employees bound to pay UK national development in the UK?
If so, the company may be able to claim tax credits against
this expenditure and potentially receive refunds from HMRC.
Unless the employee has a ?certificate of coverage? or form
?E101? in place, or where special treaty rules apply, UK
national insurance should be paid on earnings in connection Have you suffered VAT in the UK or elsewhere in the
with the UK employment. Often this will require contributions
EU, where you are not and have no requirement to be
from both the employer and the employee to be made.
In such circumstances it may be possible for the VAT to
Are employment benefits taxable and subject to
be reclaimed. This can reduce the effective cost of VATable
employer?s national insurance contributions? expenditure by 17.5% (20% from 4 January 2011) in the UK
The UK definition of taxable benefits is very widely drawn. and up to 25% in some other EU countries.
This can include accommodation costs, expense allowances,
medical insurance, cost of living adjustments and tax
Is the business expecting to have an annual UK
equalisation payments. Some of these may be subject to
turnover of over £70,000?
PAYE. Others, including reimbursed expenses, may require to
Where this happens the business is liable to register for VAT
be reported on a form ?P11D? each year. It is often the case
and must submit returns, which can be on a monthly or annual
that certain of these benefits and expenses are taxable and/
basis, but are typically prepared quarterly.
or subject to employer?s national insurance contributions when
they would not be in your home country. A form P11D needs
The above issues are intended to highlight some of the
to be completed each year to report these expenses, whether
matters which you should consider in the area of UK taxation
or not they are taxable.
and corporate regulation.
Can liability to UK income tax be reduced by use of
overseas employment contracts for employees sent to
Where there are separate contracts with two group
companies, ?dual contracts? can sometimes help in reducing
personal tax liabilities. The rules and practice in this area are
complex, and specialist advice should always be sought.
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