The location search is over. The UK is chosen, perhaps as a gateway to Europe. Difficult choices still lie ahead and one of the first will be selection of the most suitable entity with which to operate in the UK. We set out below some general information on some of the options.
Setting the scene
The fact that an overseas company is carrying on business in Great Britain does not mean that it automatically has to register with the United Kingdom Registrar of Companies. However, as soon as it establishes some sort of place of business in Great Britain it will be required to so register at Companies House, within one month of establishment. It will then have to file certain documents with the Registrar, who will put them on public record at Companies House. It will be required to register under the “establishment” regime.
A UK establishment may be liable to corporation tax in the UK if the overseas company organises its UK activities in such a way that its local representatives in the UK have some authority to commit the company, rather than referring all such matters abroad.
A UK establishment may not be liable to corporation tax in the UK if the overseas company’s UK activities are not sufficient to constitute a corporate tax presence, referred to as a permanent establishment (PE), in the UK. Such activities might include computer processing, warehousing or simply a representative office.
Alternatively, the overseas company could set up a UK subsidiary to trade in Great Britain. We deal with these options below.
Public filings at Companies House
The overseas company will have to file certain details at Companies House, including its address, type of business and the names and addresses of all persons in the UK authorised to accept notices served on the company.
The registration form should be accompanied by a certified copy of the instrument defining the constitution of the company, including certified translation where applicable.
If the overseas company is required under the law of its own country, to “prepare, have audited and disclose” its accounts, then it must file the most recent set with Companies House upon registration.
The overseas company is also required to file its own accounts each year (with certified translation as necessary), the contents of which are set out in UK regulations. These accounts, as with other documents filed with Companies House, are available for public inspection. If the overseas company that has registered the establishment in the UK is required to have its accounts audited in its home territory, then it is these accounts (translated and certified as necessary) which are required to be filed with Companies House in the UK.
If the UK establishment has limited/ancillary activities as described overleaf it will not be treated as a PE for tax purposes, and so will not be liable to corporation tax in the UK.
However, more substantive activities (even undertaken from an employee’s home) could result in it being deemed to have a PE and therefore be subject to UK tax. As this can be a grey area, advice should always be taken.
A taxable establishment of an overseas company is taxable as a PE for UK corporation tax purposes, as if it were a limited company. It will only qualify for the 21% tax rate if the profits of the company as a whole (not just those of the UK establishment) fall within the specified profit limits.
Losses incurred by a UK establishment of an overseas company can (subject to that country’s legislation) be surrendered against profits of the overseas company, as well as being carried back and forward in the UK.
The establishment does not have separate limited liability, as it is not a separate legal entity from the overseas company.
Upon formation, a company is required to have a registered office address in the UK, a minimum of one officer, a director and a minimum issued share capital of one subscriber share, typically £1. The position of an officer may be filled by a company. Further officers may be appointed as required and there is no requirement for any to be UK resident.
A limited company has limited liability - it is a separate legal entity from the parent, which has no direct responsibility for the debts and liabilities of the subsidiary.
Public filings at Companies House
A private limited UK company is required to file its own directors’ report and accounts (these may or may not need to be audited, see below) within nine months of the end of a twelve month accounting period.
A UK company is, in general terms, usually taxed at between 21-28% on its taxable profits. If a company makes losses, these can be carried forward indefinitely or carried back for one year. These losses can also be surrendered to other companies in any qualifying domestic group.
For financial years commencing on or after 6 April 2008, a UK company is generally required to have its statutory accounts audited if its turnover (or worldwide group turnover, if a subsidiary of an overseas company) is more than £6.5 million, or if its individual or group’s total balance sheet assets exceed £3.26 million.
So now what?
There is no universal argument for preferring one entity to the other. Each case must be considered in its own right, although the decision usually boils down to what is most tax efficient for the business, or is most commercially acceptable.
A limited company is generally better understood than an establishment. It is likely that a purchaser, bank or landlord for example, will want to know that your business will be around in the UK in the long-term. They may well do a company search (at Companies House) to establish how solid the UK operation is. A well capitalised UK limited company can show this. A Limited Liability Partnership (LLP), which is a company for commercial purposes but wholly tax transparent, is another option. We can advise on LLPs if they are of interest.
For more information, please contact Jim Brown, Director of BRAL Limited, firstname.lastname@example.org