DOING BUSINESS IN THE UK - PWC
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This publication is a joint project with Doing business in the UK
Contents
Executive summary 4 Disclaimer
Foreword 6 This document is issued by HSBC
Bank plc (the ‘Bank’) in the UK.
Introduction – Doing business in the UK 8 It is not intended as an offer or
solicitation for business to anyone
in any jurisdiction. It is not intended
Conducting business in the UK 12
for distribution to anyone located
in or resident in jurisdictions which
Taxation in the UK 16
restrict the distribution of this
document. It shall not be copied,
Audit and accountancy 23 reproduced, transmitted or further
distributed by any recipient.
Human Resources and Employment Law 26
The information contained in
Trade 30 this document is of a general
nature only. It is not meant to
Banking in the UK 34 be comprehensive and does not
constitute financial, legal, tax or
HSBC in the UK 36 other professional advice. You
should not act upon the information
Country overview 37 contained in this publication without
obtaining specific professional
Contacts 38 advice. This document is produced
by the Bank together with
PricewaterhouseCoopers (‘PwC’).
Whilst every care has been taken
in preparing this document,
neither the Bank nor PwC makes
any guarantee, representation or
warranty (express or implied) as
to its accuracy or completeness,
and under no circumstances will
the Bank or PwC be liable for any
loss caused by reliance on any
opinion or statement made in this
document. Except as specifically
indicated, the expressions of
opinion are those of the Bank and/
or PwC only and are subject to
change without notice.
The materials contained in this
publication were assembled in
March 2013 and were based
on the law enforceable and
information available at that time.
Executive summary
The UK’s position, both • A company can be • New immigration rules
geographically and in respect incorporated in the UK introduced in 2008 mean
of business culture, puts it with same day formation. that procedures for visiting
at the centre of a diverse and working in the UK
collection of markets and • It attracts an have changed recently and
sectors. Its open market and internationally mobile and companies should ensure
diversified economy present highly-skilled workforce. that they are addressing these.
opportunities for new investors Special rules are in existence
to access a domestic market • The headline tax rate for high net worth individuals
and to use the location as from 1 April 2013 for and entrepreneurs investing
a gateway to the rest of companies is 23%, which in the UK.
the world. the government will be
reducing to 21% by 2014. The government in the
Based on the World Bank UK is actively addressing
Doing Business survey, the • Foreign businesses coming opportunities for investors
UK is ranked top in Europe to the UK should be aware to come to the UK through
in terms of ease of doing that the accounts of all UK fiscal reforms. Whilst there
business and fourth in the companies are subject to is a genuine drive to ensure
world. It offers a number of public disclosure through that the UK has a simple
competitive advantages as a the Registrar of Companies. and easy to understand legal
hub for investors to conduct environment in which to do
their business, which can be • It has one of the largest business, investors still need
summarised as follows: treaty networks. to be aware of regulatory
aspects relating to their specific
• The UK is culturally a highly- • The scope of personal taxation sector, where appropriate.
efficient place from which varies according to the length This document contains
to access world markets. of the individual’s stay in the references to some common
It boasts a central time zone UK and whether they are issues that investors should
position, being ideally placed domiciled in the UK, allowing be aware of when operating
between the markets of the foreign nationals to arrange in the UK, although specific
East and West, good transport their tax affairs efficiently. advice on their particular
infrastructure, accessibility With effect from 6 April 2013 circumstances should
of language and familiarity a new statutory residence test be sought.
of business culture for many should be introduced, providing
new investors. certainty to individuals
regarding their UK tax residence
• The UK is a flexible and status. The government is
business-minded location, also introducing a number
historically recognised as of measures designed to
a well-established and prevent tax avoidance and
reputable jurisdiction in make the reporting in the UK
which to conduct business. more transparent.
4
Foreword
The UK’s success in attracting you in expanding overseas. In Jacques-Emmanuel Blanchet
Foreign Direct Investment the UK, our strong international Head of Commercial Banking, UK
remains undiminished. The presence and dedicated global HSBC Bank plc
World Investment report of relationship management team
2009 places the UK capital can help you negotiate the
stock of foreign direct forthcoming opportunities and
investment at US$1.0 trillion challenges.
with only the USA recording a
higher figure. This investment We hope our ‘Doing business
is due to the fundamentals of in the UK’ guide will provide
the UK economy boasting a you with some valuable insight
large market, quality suppliers into the UK market. The guide
and outstanding support has been co-written by HSBC
networks. In addition the UK and PricewaterhouseCoopers.
offers a springboard for growth Like HSBC, PwC has a strong
to global companies and those global network and a deep
aspiring to become global. understanding of the UK
marketplace. Together we
Through its merger with possess a wealth of experience
Midland Bank in 1992, HSBC and teams of local experts
has had a UK presence since ready to support your ambitions
1836, and now has 1,330 in this market.
branches across the UK.
With our headquarters in On behalf of HSBC I hope that
London, HSBC is one of the you find this guide useful, and
largest banking and financial would like to wish you every
services organisations in the success in the UK economy.
world. Thanks to our global
connections, we are best
placed to support businesses
looking to invest in the
UK market.
Trading internationally expands
a business’ horizons, offering
unique opportunities for
growth, development and profit
building. HSBC’s experience
and range of solutions across
trade finance means we are
ideally positioned to support
6
Introduction
Doing business in the UK
Welcome to our guide to Economic History • A flexible and business-
doing business in the UK. In minded location;
this publication we hope to The UK’s open market and
provide you with an insight into diversified economy has • Accessibility of language;
the key aspects of undertaking traditionally provided an active
business and investing in the base for overseas investors • A familiar gateway into the
UK and answer many of the and businesses. It has a rest of Europe and a member
questions overseas businesses long and successful history of the EU;
and entrepreneurs have when of trade with the rest of the
making their first venture into world. In the current economic • A solid, credible and long-
the UK market. climate, overseas investment established structure for
is as important as ever to the companies to build businesses;
Please note that the UK refers growth of the UK economy
to the United Kingdom of Great and the government has been • One of the world’s global
Britain and Northern Ireland sending out a clear message financial centres;
and consists of three distinct that the UK is very much
jurisdictions: ‘open for business’. • A top-class environment for
research and development work;
• England and Wales; Current advantages
• Scotland; and for new businesses • Opportunity to raise capital
• Northern Ireland. through the UK markets; and
The UK is a large and dynamic
Each of these has its own legal marketplace in its own right, • A wide network of Tax Treaties.
system. Although the three but also benefits from being
systems broadly adopt the an excellent gateway to other The UK does have a suite
same approach to business, parts of the world. Foreign of regulatory practices that
there are some important investors coming to the UK need to be considered when
distinctions and accordingly, have experienced its many coming to the UK and there
if you are planning to set up advantages, including: is still complexity of tax
your business in Scotland or legislation, particularly related
Northern Ireland, it is important • A deep pool of to overseas operations, although
to seek expert local advice. workforce expertise; the government has recently
This publication focuses on introduced measures to simplify
issues related to doing business • Excellent transport links it in order to make the tax
in England and Wales and with the rest of the world; compliance process easier for
broadly views the UK as a companies to understand.
single jurisdiction through • A central time zone position
which the laws of England and ideally placed between the
Wales apply. markets of the East and West;
8
The economic environment with high levels of investment • the size of the company is Europe’s main funding The future
from Germany, France, to be assisted; and investment for research and
The UK has recently seen Australia, India, Canada and Italy, technological development. The government recently
the impact of the worldwide and rapidly increasing levels • the type of project investment. introduced several new
recession and during 2008 of investment from China The Enterprise Investment initiatives that aim to improve
and 2009 the UK economy and Japan. These grants can cover capital Schemed (EIS) enables a basic the competitiveness of the UK
shrank by around 6% (Office investment, job creation/ rate income tax reduction to in the world market and make
of National Statistics). Office Traditionally, the export market safeguarding, R&D, property certain investors in new and it even more attractive to
of National Statistics figures has focussed heavily on goods, development, training, energy existing business, provided that overseas investors. These
show that GDP fell in the but an increasing proportion of and infrastructure investment. specified conditions are met. include several fiscal measures
quarters one, two and four of exports now relate to services. All grants are discretionary to reduce the complexity of tax
2012. There was a relatively In respect of goods, the largest and businesses looking to The regulatory environment legislation for UK holding
large increase during the third export areas in 2012 were oil obtain grants should not make companies. New legislation
quarter of 2012 which was and gas, pharmaceuticals, road an irrevocable commitment The UK is an open market in was enacted in the Finance Bill
widely attributed to the effect vehicles and chemicals, while in to an investment project prior which to do business. There 2012 and is relevant for
of the London 2012 Olympics. the services sector, financial and to receiving a grant offer. are no currency or exchange accounting periods beginning
Nevertheless, foreign direct business services accounted for In addition, further direct tax controls or restrictions on after 1 January 2013.
investment in the UK has the largest proportion of service incentives were introduced for foreign investment and it has
continued, emphasising its exports in 2012. The largest foreign nationals investing in been ranked fourth in the world The headline tax rate for
importance as a destination market for UK exports remains genuine trading businesses in respect of the ease of doing companies from 1 April 2013 is
for investment. the EU nd the US.1 in the UK. business, in the report by the 23%, with a further reduction
World Bank. to 21% by April 2014 proposed.
Key Sectors and Tax and grant incentives Set out below are just some
Trading Partners examples of the existing Certain industries are subject These measures should further
Various financial incentives grant schemes: to regulations, such as financial enhance the attractiveness of
The UK has a highly-diversified and other forms of support services and utilities, and the UK as both a destination
economy. The UK Inward can be obtained by businesses • Research and Development companies wishing to set up for investors and as a gateway
Investment Report 2011/12 wishing to establish or develop (R&D): The UK Government in these sectors should seek to the world.
produced by UK Trade and operations in the UK. The and European Commission specialist legal advice in respect
Investment identified new availability and potential level have a range of grant schemes of these regulations.
inward investment projects of grant support is influenced and support measures for
across such sectors as by the following factors: businesses. These are explained Businesses should take steps
software, engineering, in more detail further in to protect their company’s
life sciences, environment • geographical location within this document. intellectual property, especially
technology, ICT and finance the UK; as many rights are territorial
and business services. • European Union Seventh in nature and therefore may
• the number and quality of Framework programme for require active steps to ensure
The report also identified the jobs created or safeguarded; research and technological protection and enforcement
USA as the primary source development: The Seventh in the UK.
of foreign investment in the UK, • the need for assistance; Framework programme
1
Source: Office for National Statistics
10
Conducting business in the UK
Forms of business
The principal ways for a foreign • Keep registers of members, 3. Limited
Liability
investor or company to carry charges, directors and Partnership (‘LLP’)
on business in the UK are company secretaries etc.;
as follows: An LLP is a legal entity with
• Deliver an annual return and a flexible organisational structure
1. UK establishment statutory accounts to the like that of a partnership. It must
Registrar of Companies, have at least two members
A UK establishment is either together with having the and all members have limited
a branch or a place of business. accounts approved by the liability. Designated members
An establishment is not a directors/shareholders; and have responsibility for:
separate legal entity from the
overseas parent and therefore • Have a registered office • Appointing an auditor
does not have limited liability address in the UK. (if needed);
in its own right.
The company director is • Signing and filing the accounts;
2. Limited company responsible for the day-to-
day management of the • Notifying Companies House
A limited company is a company and is subject to of any membership changes
separate legal entity with its various statutory duties that, etc.; and
own limited liabilities. This if breached, can result in
is much more substantial personal liability. These include • Delivering an annual return
than a UK establishment and the requirement to act in to the Registrar of Companies.
offers greater assurance for accordance with the company’s
customers and others who constitution; to only exercise Businesses can additionally
come into contact with the powers for the purpose for be conducted as sole traders
business. It also offers more which they were conferred; or partnerships. These have
flexibility of ownership than and to act in a manner that different tax consequences
an establishment. they consider to be the most to those explained below.
likely to promote the success
A company must: of the company for the benefit In order to decide the most
of its members as a whole. appropriate entity, you may
• Have at least one Companies Act 2006 contains wish to consider issues such
natural director; a comprehensive statement as the permanence and size
of such statutory duties. of your activity in the UK,
• Appoint auditors, unless its associated regulatory and
turnover and balance sheet are disclosure requirements and
below specified thresholds; tax and commercial implications.
12
Setting up a business
1. UK Establishment – Details of the permanent • Completed form IN01 (details
representatives of the of the Registered Office,
Every overseas entity that company in respect of the Directors, share capital,
has an establishment in business in the UK and the shareholders and a statement
the UK from which it does extent of their authority to of compliance stating that
business must register the represent the company. various requirements have
UK establishment within been met); and
one month by providing the • A certified copy and
following details to the UK translation of the company’s • Registration fee of £20
Registrar of Companies: constitutional documents; (£50 for same day service).
• A completed form OSIN01 • A translated copy of the When all formalities have
providing: company’s latest audited been followed, the Registrar
financial statements (if the of Companies will issue a
company is required to file certificate of incorporation
– The official name accounts publically in its which is evidence that the
of the company; country of incorporation); and company is duly established
and can begin trading.
– The country of incorporation; • Registration fee of £20 The most common corporate
(£50 for same day service). vehicle is a limited company.
– The address of the However, it is also possible
establishment in the UK 2. Company to establish a public company.
and overseas; This has minimum share capital
A company is incorporated by of £50,000 or the prescribed
– Details of the directors filing the following with the UK Euro equivalent.
and secretaries including Registrar of Companies:
the extent of their ability 3. LLP
to represent the company; • A signed Memorandum
of Association; An LLP is incorporated by
– Details for the person filing the following with the
authorised to accept service • Signed Articles of Association UK Registrar of Companies:
of process on behalf of the (the rules under which the
company; and company will be run); • Completed form LL IN01
(details of the LLP’s name,
registered office, details
of members and statement
of compliance); and
• Registration fee of £20
(£50 for same day service).
14
Taxation in the UK
Corporation Income Tax
Scope For large companies, • Amortisation of capital
corporation tax is payable in expenditure is added back and
A company that is resident quarterly instalments beginning statutory capital allowances
in the UK for tax purposes 6 months and 13 days from deducted instead (see below);
is liable to corporation tax the start of the accounting
on its worldwide profits and period. Small companies, or • Certain expenses (e.g. patent
chargeable gains. A UK those whose tax liability is royalties) are deducted on a
Establishment of a non- less than £10,000, pay within paid basis against total income;
resident company is liable to nine months of the end of the
UK corporation tax on trading accounting period. • General provisions and
income arising through the UK provisions for contingent losses
establishment, income from Penalties may be charged are added back; and
property or rights held in the for failure to notify
UK and chargeable gains on Her Majesty’s Revenue • Taxation of Intellectual property
the disposal of assets situated and Customs (‘HMRC’) of is based on amortisation in
in the UK. a liability to corporation tax accounts and profits on sales
within 3 months and for late taxed as income.
A company is UK resident if filing of a tax return. Tax
it is incorporated in the UK or geared late filing penalties Capital Allowances
managed and controlled from may also be imposed if tax
the UK. is outstanding. Capital allowances allow the
cost of the capital assets to be
Corporation tax rates (for financial year to 31 March 2014) written-off against the taxable
profits of a business and take
£ % the place of commercial
Small profits rate 0-300,000 20 depreciation charged in
accounts. The Annual
Marginal rate 300,001-1,500,000 23.75
Investment Allowance gives a
Standard rate Over 1,500,000 23 100% writing down allowance
on the first £25,000 spent on
general plant and machinery in
The thresholds are reduced Taxable profits a period. This is time
by the number of active apportioned where an
associated companies within Taxable profits are calculated accounting period is less than
the group. (Companies are by adding together income from 12 months. The Government
usually associated if one is various sources. The starting has announced that as part of
under the control of the other point is in accordance with Finance Act 2013, the limit will
or they are under joint control generally accepted accounting be increased to £250,000 for a
by a third company). principles, with certain statutory temporary period of 2 years
adjustments. Some of the most effective from 1 January 2013.
Administration common adjustments are:
Companies are required • Expenditure incurred wholly
to submit an annual ‘self- and exclusively for business
assessment’ return within purposes is deductible;
12 months of the year end.
16
Personal Income Tax
After this initial allowance, the Dividends and profit these debt cap rules, although Likewise, royalty payments as transactions taking place Rates
main rate of capital allowances repatriation there is a ‘Gateway Test’ are also generally subject at ‘market value’. Transactions
for general spending on plant and which, if met, means that the to withholding tax at 20%, between UK companies are In the UK, an individual is
machinery is 18% with some A UK company can repatriate interest cap does not apply to mitigated by the impact also caught by the transfer assessed for income tax for
100% enhanced allowances profits to the home territory of the company. of treaties. pricing legislation. the financial year starting on
for certain energy and water its parent company in a number 6 April in one year and ending
efficient equipment. of ways, for example: The UK also operates disclosure Losses Examples of intra-group on 5 April in the following year
and anti-avoidance provisions supplies and services caught on income in excess of a
Chargeable gains • Dividends – there is no in relation to Controlled Foreign Trading losses may be utilised by transfer pricing include head personal allowance (for the
withholding tax on payments of Companies (CFC), with new rules in 4 principal ways: office services, intra-group 2012-2013, the basic allowance
UK resident companies dividends from a UK company. applying for accounting periods loans, free use of intangible is £8,105).
pay corporation tax on their • Interest – a UK company needs beginning after 1 January 2013. • Against other profits of the property. Transfer pricing
chargeable gains at the to be able to demonstrate that The aim of the reforms was to same period; rules do not apply to small or Scope
relevant corporation tax it is adequately capitalised to improve UK competitiveness and medium-sized groups, whether
rate. UK establishments of support a deduction for intra- make the rules easier to operate. • Against profits of any UK-to-UK or cross-border The system for taxing individuals
foreign companies are also group interest payable. See description in the prior period; transactions, unless: moving to the United Kingdom is
liable to corporation tax on below regarding the new UK If a UK company has held generally unique. An individual’s
chargeable gains arising on the ‘debt cap’. investments in other entities, • Against profits of the same • An enterprise elects liability to UK tax not only
disposal of any assets that are • Other intercompany trading certain exemptions apply to trade in future periods; and irrevocably for them depends on where they are
situated in the UK and used transactions (e.g. management the taxation of dividends to apply; or resident, but also where they are
for the purposes of the UK charges) – these will be received by that UK company • As group relief in the same domiciled. Current rules regarding
establishment or its trade. subject to the UK transfer from investments in other UK accounting periods to other • There are transactions UK tax residence are complex,
pricing rules, in which case the or overseas companies. group companies. with a resident of a however a statutory residence
There is an exemption available company or UK establishment non-qualifying territory. test will be introduced from
for certain capital gains and needs to be comfortable that Withholding Tax Trading losses do not expire but 6 April 2013. Broadly, a resident
losses on substantial (more an arm’s-length standard has may be lost or restricted if there individual for tax purposes is any
than 10%) shareholdings in been applied. As stated above, there is no are changes to the trade or the individual present in the UK for
trading companies disposed withholding tax on dividends way in which it is carried on. over 183 days in the tax year.
of by corporate shareholders, Since 1 January 2010, paid by a UK company. Additional tests apply for
provided that various other a ‘debt cap’ applies to Transfer Pricing individuals frequently visiting the
conditions concerning the worldwide groups including Interest paid is generally UK and those with connections to
nature of the companies UK companies. The debt cap subject to a withholding tax UK tax legislation prevents the the UK.
are met. This is commonly limits the tax deduction to the rate of 20%, but this is avoidance of corporation tax
referred to as the ‘Substantial extent that the UK company’s mitigated in many cases of by pricing goods at an artificial The term ‘domicile’ is not defined
Shareholdings Exemption’. net finance expense exceeds payment to a corporate entity, level in order to achieve profits in UK tax law, and is a purely
the worldwide group’s gross either by the existence of a in tax havens or in countries common law concept. Domicile
A non-UK resident company external finance expense. double tax treaty which reduces with lower rates of taxation. is distinct from nationality,
disposing of shares in a UK The legislation is extremely the rate, or the application of Accordingly, transactions citizenship or residence.
company will not generally be complex and specialist advice EU directives. It is necessary (including the giving of loans)
subject to UK taxation, unless it should be sought. It is likely to apply for advance clearance between ‘associated persons’ In very broad terms, an
has a permanent establishment that a significant number of to the UK tax authorities to (namely, persons who are individual is domiciled where
in the UK. companies will fall within make a payment of interest at under common control or who they have their permanent
the reduced withholding rate. control one another) are treated home and where they consider
their permanent home to be.
18VAT
If a person is resident and There are other tax advantages Entrepreneurs’ relief is available Inheritance Tax The system of Value Added The result of this is that the
domiciled in the UK, then they and incentives available for for individuals who make a Tax (VAT) in the UK is essentially final consumers bear the cost
will be subject to UK tax on individuals coming to the UK material disposal of a business Inheritance tax is charged on the same as that used in the of VAT on the final price of the
their worldwide income, gains temporarily. However, this is a asset; primarily shares or individuals, including executors rest of the EU. There remain, goods or services they purchase.
and assets, irrespective of complex area of taxation and securities of an individual’s and trustees on death and however, some significant
where these are situated. professional advice should be ‘personal’ company or the certain chargeable transfers and confusing differences of Since 4 January 2011, the
sought early on. whole or part of a business of assets. detail between different standard rate of VAT is 20%.
Individuals not domiciled in (including partnership member states of the EU.
the United Kingdom can elect Capital gains tax (CGT) interests). Payroll taxes and VAT is charged on the supply The UK VAT turnover
to be taxed differently, Social Security of goods and services in the registration limit is currently
effectively limiting their UK Individuals who are resident in There are qualifying conditions UK made by a taxable person £77,000. A taxable person
tax liability to their UK source the UK are liable to capital gains attached to each category, for All UK employers must operate in the course of furtherance is liable to register for VAT if
income and gains and foreign tax on: example in the case of the a ‘Pay As You Earn’ (PAYE) of a business, unless the their combined value of taxable
source income and gains personal company the payroll system. Over each UK supplies are zero-rated or supplies in the UK exceeded
which they bring or use to • worldwide gains – if domiciled requirements are that for at least tax year, an employer must exempt. A UK taxable person the registration limit in the
the UK (‘remittance basis’). in the UK; and 12 months prior to the disposal: account to HMRC for the full is anyone registered or liable preceding 12 months, or there
amount of any income tax and to be registered for UK VAT. are reasonable grounds for
Legislation provides instances • gains remitted to the UK – if • the individual must hold at National Insurance contributions believing that the value of
when this election is required. domiciled elsewhere and elect least 5% of the ordinary share (social security) that it must VAT is effectively a tax on taxable supplies to be made
The election has to be made to be taxed on the remittance capital and 5% of the voting deduct from payments made consumer expenditure. in the next 30 days alone will
each year in most cases. basis. rights exercisable by virtue of to employees. UK employers So, in theory, the final burden exceed the registration limit.
that holding; are required to operate the of the tax should not fall on A business may also de-register
Individuals not domiciled in the Since 23 June 2010, basic rate system without exception and business activity. This objective if the anticipated value of the
UK might be liable to pay an taxpayers are subject to tax on • the company must be a trading to keep appropriate records is achieved by an arrangement taxable supplies in the next
annual levy1 to be taxed under capital gains at 18% and higher company or holding company and complete the necessary known as the input/output 12 months is less than the
the remittance basis of taxation, and additional rate taxpayers at a of a trading group; and filings. They must also account system. When a business de-registration limit (currently
depending on the length of rate of 28%. for Employers’ Social Security buys goods or services, £75,000).
time they have been resident in • the individual must be an payments. The rates are up it pays VAT to the supplier
the UK. The levy is payable in officer or employee of the to 12% for employees’ (input tax). When the The standard VAT reporting
addition to their UK tax liability company or a company within contributions (but this is business sells goods or requirement for a company/UK
for the year. the group. subject to a cap) and 13.8% services, whether to establishment after registration
for employers’ contributions. another business or to a is to submit returns to HMRC
The relief is given in the form final consumer, it is required every three months. If a business
Personal tax rates (for financial year to 31 March 2013)
of a reduction of the rate of to charge VAT (output tax) wants to recover its input VAT
£ % capital gains tax chargeable unless the supplies are more quickly, it may request
to an effective rate of 10% specifically relieved from the permission to submit monthly
The first 0-34,370 20
on a ‘lifetime amount’. The VAT charge. If the business VAT returns. There are other
34,371-150,000 40 lifetime amount is £10m from makes only taxable supplies, returns that will need to be
6 April 2011. it must periodically total the rendered if a UK-based business
Over 150,000 50
input tax it incurs (unless the trades with customers/suppliers
business makes exempt located outside of the UK.
supplies) and deduct this
from the output tax charged,
1
£30,000 for individuals resident in paying the balance to HMRC.
the UK for 7 out of the last 10 tax
years and £50,000 for individuals
20 resident in the UK for more than
12 years.Audit and accountancy
Other taxes and incentives
Stamp Duty • fewer than 500 employees; and Where a small company has Books and Records think fit. The records may be On incorporation, a company
a ‘surrenderable loss’, it may kept outside the UK, but, if they may choose an ‘accounting
Stamp duty is a tax payable on • either: claim an R&D tax credit. The UK Companies Act requires are, certain accounts and returns reference date’ (i.e. the day
certain transactions, such as Generally, a surrenderable that accounting records explain must be sent to and retained in and month on which an
the following: – an annual turnover not loss arises where the company the company’s transactions the UK. Private companies must accounting reference period
exceeding €100m; or incurs a trading loss. The and enable the directors to retain their accounting records ends). A company may alter
• Transactions in shares may surrenderable loss is the ensure that the annual accounts for three years, public companies its accounting reference date,
be subject to Stamp Duty or – an annual balance sheet total lower of: comply with the requirements for six years (but will be obliged subject to certain limitations.
Stamp Duty Reserve Tax; and not exceeding €86m. of the Act. These records must to retain them for longer periods
• the unrelieved trading loss; and detail the following in particular: for tax purposes). A private limited company must
• Transactions in land and Qualifying research and file its accounts at Companies
property are subject to Stamp development expenditure • 200% of the qualifying research • all sums of money received Accounts and reports House within nine months
Duty Land Tax. is expenditure directly and development expenditure and expended, and the and public companies within
contributing to the research from March 2011 and 225% reason for the receipts A private company must six months of the accounting
The rate of Stamp Tax depends and development activity of the from March 2012. There’s or expenditure; and prepare individual accounts for reference year end.
on the type of transaction and company, e.g.: an upper limit of €7.5 million each financial year, comprising:
the value. For example, on the on the total amount of aid a • the assets and liabilities. • a directors’ report; A private company’s annual
purchase of land, Stamp Duty • costs of staff who are actively claimant can receive on any one • an auditor’s report (for accounts must be approved
Land Tax is payable on the engaged in carrying on the R&D project. If the company’s business companies requiring an audit); by the board of directors and
chargeable consideration at a R&D activities; involves dealing in goods, • a balance sheet as at the last signed on the board’s behalf
rate of between 0% and 15%, Where the R&D tax credit records must be kept of day of the financial year; by at least one director.
depending on the value of the • software or consumable items; is claimed, the trading loss the following: • a profit and loss account for the
property as well as how it is carried forward is reduced by period of the financial year; A copy of the accounts must
owned and used. • certain qualifying indirect the corresponding amount. The • all stock held (inventory) at • a cash flow statement be sent to the shareholders,
activities, e.g. secretarial R&D tax credit will be paid to the date to which the accounts (unless a company is small debenture holders (if there are
Research and Development time supporting the R&D the company by HMRC or may have been drawn up, and all or medium-sized); and any) and any persons who are
Expenditure staff, finance and payroll be set against any corporation stocktaking records from • notes to the accounts. entitled to receive notice of
activity to the extent that tax liabilities due. which such statements have general meetings (unless the
Certain companies incurring it relates to the R&D staff. been prepared; and Dormant companies are only company does not have their
research and development For a large company (i.e. required to prepare accounts current address). This should
expenditure of a specific nature If the workers are supplied one which exceeds the small • all goods sold and purchased, consisting of a directors’ report, happen by no later than the
on or after 1 April 2000 are by an unconnected company, and medium-sized enterprise including the identity of the balance sheet and notes. end of the period for delivering
entitled to claim enhanced R&D 65% of the payments made company limits), the relief buyers and sellers (except the accounts and reports or,
tax relief. in respect of them will be given is 130% of the qualifying in the case of goods sold in The accounting reference if earlier, the date on which it
qualifying expenditure. costs. Such companies are ordinary retail trade). period determines a company’s actually delivers its accounts
Companies that are small or not entitled to surrender ‘financial year’, in respect of which and reports for filing.
medium-sized enterprises The R&D expenditure must the amount for tax credits. There is no requirement as to accounts must be prepared.
(and part of a small or medium- be on projects that have the form in which accounting Accounts are available for
sized group) are entitled to an a degree of technological records must be kept, but they The accounting reference public inspection, on payment
enhanced deduction of 225% or scientific uncertainty. must be able to disclose with period is generally 12 months of a small fee, at the UK
of qualifying R&D expenditure. reasonable accuracy, at any in duration, except the first Companies Registry.
The definition of a small or time, the financial position of accounting reference period,
medium-sized company is the company. The accounting which must not be less than
as follows: records must be kept at the 6 months but not more than
company’s registered office or at 18 months after the company’s
such other place as the directors date of incorporation.
22A group is ineligible if any of its If an auditor is not re-appointed are required to meet the
members is a public company, by the end of the next period for following obligations regarding
a body corporate (other than appointing auditors, the current preparation of accounts.
a company) whose shares auditors will be deemed to be
are admitted to trading on a re-appointed except in certain The type of accounts required
regulated market in an EEA circumstances. for filing by the overseas
state, a person (other than company in the UK will depend
a small company) who has The auditors are required to upon whether they are required
permission to act under Part make a report to the members to prepare, have audited and
Private companies must file • a public company; Audited financial statements 4 of the Financial Services on every balance sheet publicly disclose its accounts
a complete set of accounts • a company that has permission for UK Companies and Markets Act to carry on and profit and loss account in the country of incorporation
unless they are classified either under Part 4 of FSMA to carry a regulated activity, a small (cashflow, statement of total or under its governing law.
as ‘medium-sized’ or ‘small’ on a regulated activity or carries At the present time, all UK company that is an authorised recognised gains and losses
companies or ‘dormant’, when on insurance market activity; or businesses incorporated under insurance company, a banking (STRGL), etc) and on all group For companies that are required
(with certain exceptions) they • a member of an ineligible group. the Companies Act require company, an e-money issuer, accounts laid before the to publicly file accounts in their
may file abbreviated accounts. statutory audits unless they an ISD investment firm or a company in general meeting, home territory a copy of those
A small company need not qualify for an audit exemption. UCITS management company if so required. The auditors’ accounts must be filed with the
A company qualifies as ‘small’ file a profit and loss account Audit exemptions are available or a person who carried on report must state whether the UK Registrar.
if, for the year in question and or directors’ report and is in the following circumstances: insurance market activity. accounts have been properly
(except in the case of a new permitted to file a modified prepared in accordance with Overseas companies
company) for the preceding balance sheet. • the company qualifies as In addition, shareholders the Companies Act and incorporated within the EEA
financial year, two or more of the dormant; or holding more than 10% in whether they show a true that are not required to disclose
following conditions are satisfied: A medium-sized company • the company qualifies as a nominal value of the company’s and fair view. In forming their accounting records under their
may file a modified profit and small company in relation to issued share capital can require opinion, auditors must also parent law do not have to file
• the amount of its turnover for loss account and need not that year. the company to undertake consider whether the following any accounting documents with
the year is not more than £6.5m; disclose, in the notes to the an audit. conditions have been satisfied: the UK Registrar.
• its balance sheet total is not profit and loss account, certain A company qualifies as ‘small’
more than £3.26m; details relating to turnover and if, for the year in question and Auditors and their duties • Have proper accounting Companies incorporated
• the average number of persons profits (or losses) attributable (except in the case of a new records been kept? outside of the EEA that are not
employed by the company in the to different classes of business company) for the preceding Where a company is required • Are the annual accounts required to disclose accounts
year (determined on a weekly carried on by the company. financial year, two or more to have its accounts audited it in agreement with the publicly under their governing
basis) does not exceed 50. Apart from these exemptions, of the following conditions must appoint an auditor. accounting records? law must prepare accounts
a medium-sized company must are satisfied: An auditor must be appointed • Have they received all which have been prepared
A company qualifies as file full individual accounts in all for each financial year of the information, explanations under one of the following
‘medium-sized’ if, for the other respects. • the amount of its turnover for company. A company’s first and returns necessary to accounting frameworks:
financial year in question and the year is not more than £6.5m; auditors are usually appointed form this opinion?
(except in the case of a new Where the directors take • its balance sheet total is not by the directors. For any financial • Section 396 of the Companies
company) for the preceding advantage of the filing more than £3.26m; and year other than the first, the If they are not satisfied in any of Act 2006;
financial year, two or more exemptions for small and • the average number of persons auditor will generally be appointed these respects, the auditors must • The law of its parent company
of the following conditions medium-sized companies, employed by the company in the within 28 days of the circulation declare that fact in their report. to prepare individual’s accounts;
are satisfied: the balance sheet must year (determined on a weekly of a company’s accounts to its or
contain a statement declaring basis) does not exceed 50. shareholders or if the company Foreign registered entities • International Accounting
• the amount of its turnover this fact. The accounts must is required to have an annual Standards.
is not more than £25.9m; be accompanied by a special The exemption is not available general meeting (‘AGM’) from Since 1 October 2009, there
• its balance sheet total is not report of the auditor stating if the company is a public the conclusion of the AGM at has been one regime which If an overseas company is
more than £12.9m; that, in the auditor’s opinion, company, a company that which their re-appointment is governs the registration for a parent company, the
• the average number of persons the company is entitled to is an authorised insurance approved. An auditor’s term of overseas companies with a directors must prepare group
employed by the company in the exemptions claimed and company, a banking company, office will usually run from the end presence in the UK, which is accounts for the year instead
the year does not exceed 250. that the accounts have been an e-money issuer, an ISD of the 28-day period following known as a UK Establishment. of individual accounts, subject
properly prepared. investment firm or a UCITS circulation of the accounts until All branches and places of to certain exemptions.
However, a company will not management company or a the end of the corresponding business previously registered
be deemed to be a medium- member of an ineligible group. period in the following financial under the regime prior to
sized company if it is: year or from the conclusion of the 1 October 2009 are now treated
AGM to the start of the next AGM. as a UK Establishment and
24Human Resources
and Employment Law
UK law grants employees a • an obligation to pay employees • various rights for employees
range of protections that create at least the national minimum to protect them in the event
obligations and potential risks wage, which is a fixed hourly of termination of employment.
for employers. Although these rate and is increased annually These include a minimum
are generally less stringent than (currently £6.19 for those aged notice entitlement that can
in other European countries, 21 and over); be as long as 12 weeks and
you will nonetheless need to a right to a statutory payment
be aware of them. • various benefits in connection on being made redundant with
with giving birth, adoption more than two years’ service.
The obligations an employer and other family situations Where service exceeds one
owes its UK employees include: (these include maternity year, a dismissed employee
absence for up to 12 months, has a right to claim
• a general duty to provide a safe part of which is paid, and a compensation for unfair
place of work, safe access and right to time off to deal with dismissal and that claim will
safe work systems, supported domestic emergencies); be successful unless the
by related obligations, among employer can show a permitted
other things, to take out • a requirement not to allow reason for termination and that
employers’ liability insurance, a worker to work beyond 48 a fair and legal process has
consult with employees or hours per week (on average been followed.
their representatives over health over, normally, a 17-week
and safety issues and provide period) without express Union or other collective rights
staff with certain health and consent (there are additional are less onerous in the UK
safety information; limits on working time, than in many other European
including daily and weekly countries. The law in the
• a requirement to provide time off and specific limits UK requires an employer to
a written statement of terms related to younger workers recognise a trade union or
and conditions of employment and night workers); establish a national works
to employees within two council or committee in
months of commencement • a duty to give each employee certain circumstances, but only
of employment (a contract a minimum amount of 28 days where such an arrangement
of employment can satisfy paid holiday each year (based is specifically requested by a
this obligation); on a 5-day working week); union or workers. As a result,
many UK employers have no
• an obligation not to discriminate • a requirement to observe such arrangements in place.
against employees, including limitations on the freedom
job applicants, on a range of of an employer to process It is beneficial for an employer
grounds, including race, colour, personal data obtained about to establish a comprehensive
nationality, ethnic origin, age, its employees and job contract of employment to be
gender (this includes sexual applicants, including issued to each employee. This
harassment), marital status, transferring it to third parties can include all of the terms
religion or religious belief, (these limitations are more and conditions of employment,
sexual orientation, disability, strict in relation to personal covering the rights described
or part-time or fixed-term status; data which is ‘sensitive’ above, and in addition protect
and where the data may be the employer’s business
transferred outside the EU interests by placing obligations
to countries with lower levels on the employee.
26 of privacy protection); andExamples are specific employee. The employer is Immigration Tier 2 Under the PBS, companies Business visitors should
requirements to keep responsible for reporting any have certain duties concerning ensure they check whether
information about the taxable benefits provided to an The UK operate a five-tier • For people coming to the record keeping, undertaking it is necessary for them to apply
business and its customers employee in an annual return immigration system known UK with a skilled job offer ongoing checks on individuals, for a visa for their business
confidential, provisions securing (form P11D). Benefits such as as the ‘Points Based System’ to fill a gap in the workforce maintaining robust HR policies visit. It is also crucial that tax,
ownership of inventions and bonus, health insurance and (‘PBS’). New applications will that cannot be filled by a and co-operating with the social security, immigration
developments made in the car allowance are a matter of be processed under the PBS settled worker. UKBA. Companies that fail and employment law issues
course of employment, and choice for the employer. and for workers already in the to discharge these duties may are considered for short-term
covenants restricting certain UK with work permits issued • The UK company acts as face several penalties including business visitors.
competitive activities after From 1 October 2012, all UK under the old regime, there a sponsor to the employee. removal from the Sponsorship
employment ends, such as employers must automatically are transitional arrangements Register. This prevents the Business visitors face serious
poaching customers or key enrol all employees into a in place for renewal of these. • Depending on the route used issue of future certificates of consequences, including being
staff. Employers frequently pension scheme and eventually Tiers 1 and 2 are the most under Tier 2, the UK company sponsorship under Tier 2. unable to re-enter the UK for
supplement this contract with ensure minimum contributions relevant tiers for inward investors should undertake a resident up to 10 years, if they make
a formal staff handbook setting are paid equal to 8% of total and are summarised below: labour market test (i.e. provide It is possible for an individual to false representations about
out company policies, including earnings. This legislation will evidence of advertising the enter the UK on a business visit their proposed activities in the
ones that support compliance be introduced in a phased Tier 1 specific role plus evidence for up to six months if they will UK. Furthermore, if employees
with the issues referred to approach over five years with of why local resident workers be undertaking activities that travel to the UK and undertake
above, such as discrimination/ smaller employers not required • Relates to ‘Highly skilled migrants’. cannot undertake this position). fall within the business visitor activities over and above those
harassment and data protection. to comply until later years. There are certain exceptions guidance rules. Examples of permitted under the business
• Points awarded in various for individuals who are Intra- permitted activities include: visitor rules, this could be
The contract of employment The provision of pension categories, including academic company Transfers (‘ICT’) or classed as illegal employment.
is an important tool in setting benefits is in the process achievement, earned income, if the specific role is identified • attending meetings, including
out the terms of any benefits of further significant changes age and UK experience. as a shortage occupation interviews that have been Under UK immigration
provided, most notably with dramatic alterations in by an independent advisory arranged before coming to the legislation, it is illegal to employ
bonuses. Precise language the tax treatment of pension • The individual must be able to committee and is listed as United Kingdom, or conferences; an individual who does not
in the contract can clarify the contributions for ‘high-earners’. prove that he/she is able to such on the UKBA Shortage have the appropriate permission
employee’s rights and may save The challenge for an employer speak English to the required Occupation List. • arranging deals or negotiating to work in the UK. If a company
the employer unexpected costs is how to maintain pension standard as stated by the UK or signing trade agreements employs an individual illegally
on termination of employment. provision as an attractive part of Border Agency (UKBA) and has It is currently still possible for or contracts; they may be liable to a civil
the reward package or at least adequate funds available to an employee to apply to the penalty of up to £10,000
The contract of employment develop tax-efficient savings meet a maintenance British Consulate to enter the • undertaking fact finding per illegal worker and if they
will include terms relating to: arrangements as an alternative. requirement. UK on a Sole Representative missions; and knowingly employ an individual
In the UK, it is common to find Visa. This route is separate illegally, potentially a criminal
• salary; some sort of equity incentive • Allows individuals to work from the PBS. This route is • conducting site visits. penalty of an unlimited fine
arrangement as part of a senior in any capacity, in self- designed for a first, full-time, and/or imprisonment of up
• potential bonuses; and executive’s reward package employment or employment senior employee who is to be to 2 years.
(and in some organisations for any employer. relocated to the UK to assist
• benefits provided by the employee share ownership is with the set-up of a wholly-
employer to employees. spread across the workforce • Processing of this type of owned subsidiary or to register
in general) though this is usually application takes approximately a UK Establishment for an
Provision of benefits (rather made available outside the 4-6 weeks. overseas parent company.
than paying a higher salary) contract of employment. They will be tied to working
can have tax advantages for for the UK sponsor.
both the employer and the
28Trade
Trade and Competition
While various EU rules impact It is recommended that you UK and EU competition law. records about their financial
on trade in general, the UK take professional advice The UK and EU authorities have standing held by credit
attaches great importance to to ensure all appropriate the power to prohibit or unwind information agencies and, if
free competition. As a result: regulations are identified and mergers, or impose remedies applicable, correcting them,
complied with. Amongst (such as forced divestment of then it is likely that you will
• price controls are not other industry sectors, parts of the merged business). be subject to the Consumer
imposed (other than on certain Financial Services and Credit Act (CCA) 1974 and the
regulated sectors); certain utilities (e.g. energy, Two independent public bodies European Union Directive on
• there is a complete absence water, telecommunications have prime responsibility for Consumer Credit 2008 and will
of exchange controls; and and broadcasting, postal ensuring that markets function need a consumer credit licence.
• in general, no restrictions are services, airports and railways) effectively, consumers are The rules relating to consumer
imposed on foreign ownership are subject to additional treated fairly, and EU and UK credit are very complex and you
or investment. regulations. competition law is enforced. should obtain your own legal
These are: advice if you are uncertain as to
Under European Commission To ensure that free whether your proposed business
and UK competition law rules, competition works effectively • The Office of Fair Trading, might need a licence. Failure to
certain agreements that for consumers – encouraging which is the UK’s consumer comply with the CCA licensing
have the effect of restricting efficiency and innovation and competition authority; and requirements will attract criminal
or distorting competition and driving down prices – • The Competition Commission, liability and other sanctions.
within the EU are prohibited legislation prohibits certain which conducts in-depth
– unless they fall within anti-competitive practices inquiries into mergers and Money Laundering
certain automatic exclusions and imposes requirements markets when necessary.
or exemptions. A clause or to treat customers fairly. The Money Laundering
entire agreement that is anti- EU and UK competition law Consumer Credit Regulations 2007 require certain
competitive and does not fall places restrictions on certain businesses to register with their
within obvious exemptions will agreements, particularly those If the proposed business will relevant supervisory authority,
be void and unenforceable. between competitors, including involve any one of the following: have systems in place to prevent
There are also controls on some cartels. It also prohibits • lending money or selling money laundering and report
mergers and joint ventures. exploitation of a dominant goods on credit to an suspicious transactions. The
position and anti-competitive individual consumer or categories of business within the
Businesses in the UK can practices, such as predatory a small partnership; scope of the regulations include:
be impacted by numerous pricing or refusal to supply. • hiring goods to an individual
regulations including but not Sanctions include: consumer or a small partnership; • credit institutions;
limited to: • offering hire purchase terms • financial institutions;
• fines based on the turnover to an individual consumer • auditors, insolvency
• health and safety of the business; and or small partnership; practitioners, external
(of employees, consumers • custodial sentences for • carrying on activities that relate accountants and tax advisers;
and the general public); executives (but only where to credit and hire agreements, • trust or company
• certain technical standards there has been a flagrant such as credit brokerage, service providers;
(e.g. to guarantee quality breach of the regulations, debt-adjusting, • estate agents;
and inter-operability); such as price fixing). debt-counselling • high-value dealers (businesses
• product liability; or debt-collecting; that receive cash payment
• anti-corruption; and Because mergers can • administering credit or hire of 15,000 Euros or more in
• advertising and reduce the effectiveness of agreements on behalf of the exchange for goods); and
the environment. competition, they are subject creditor or hirer; or • casinos.
to regulatory clearance under • helping individuals to locate
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