Many companies consider the United Kingdom their top choice for business expansion. Apart from gaining a market of affluent customers, taxation of foreign subsidiaries in the United Kingdom is simple if you compare it with other foreign markets. Business expansion to other countries of Europe also becomes easy once you have access to the UK market.
Are you thinking of setting up a subsidiary in the United Kingdom? In this article, you will find all the required details on setting up your subsidiary business in the United Kingdom to make it easy for you to shift your operations overseas.
What are the Types of Subsidiaries in the United Kingdom?
The subsidiary system in the United Kingdom incorporates those companies that take care of trading and other operations of its parent company in the UK, following the local rules. The parent either wholly owns it or shares the ownership with local partners.
The distinction of these organizations depends upon the company ownership and proportion of public liabilities.
A subsidiary business in the United Kingdom can fall into any of the following classes:
PLC or Public Limited Company
The companies in this category are open for public ownership. Their shares are available for the public and claim ownership. However, public ownership is restricted by the stake they hold in the company. These companies usually have a company secretary and at least two directors.
Private limited company by shares
As the name indicates, these companies are privately owned and do not have any shareholders. These are the most frequently occurring companies in the UK. In case there is a need to sell the shares, a private sale takes place, and the liability of the shareholders is limited to the company’s reserves.
Private company limited by guarantee
These companies are different as they never make their shares public. If there is a need to dissolve the company, a group of members makes a pre-agreed voluntary contribution to it. The amount limit is set at the minimum for the ease of members.
UNLTD or Unlimited Company
As the name suggests, these private companies have shareholders with infinite liabilities. There are no restrictions on the total amount any shareholder is liable to pay if the company is wound up. The companies can even depend entirely on the shareholders to pay off the entire debt. Owing to such risks, these companies are rare in the UK.
How to Set Up Subsidiary in the United Kingdom?
Setting up a subsidiary in the United Kingdom ensures that business owners can perform independently. Any subsidiary business in the United Kingdom is legally independent of its parent company.
The steps to set up a subsidiary company in the UK are:
- ~The first step is to decide on a name that will differentiate the parent and subsidiary branches.
- ~The next step is to look for an office address and register it.
- ~Along with it, you also need to find a statement of capital.
- ~The next step is to verify SIC or Standard Industrial Classification of Economic Activities. This helps in identifying what a business exactly does.
- ~The next step is to create a PSC register. This register holds every detail of the Persons of Significant Control or the shareholders.
- ~This is followed by VAT registration, especially if your previous year’s taxable commodities exceeded £85,000.
- ~Then comes PAYE or Pay As You Earn registration, dropping your contribution to Her Majesty.
- ~The final step is to look for an insurance plan of at least 5,000,000 GBP.
Benefits of Setting Up a United Kingdom Subsidiary
Location plays a pivotal role in the flourishing of any business. Owing to the available benefits of a subsidiary company in the United Kingdom, it is one of the most attractive locations for entrepreneurs. They get a chance to operate in a well-managed and secure environment, with affordable taxes and a flourishing market.
Simple tax structure
Before considering a global expansion for the business, any company would think about the complicated tax regime of its preferred location. In this respect, the United Kingdom has one of the most easily manageable and affordable tax regimes with numerous incentives.
Companies in the United Kingdom flourish for another reason: their skilled labor force. The workforce of the UK stands to be the second-largest one in the European Union, and this 30+ million workforce is expected to grow further. Along with skilled workers, the employers also benefit from pre-established rules, which are created keeping in mind the protection of employees.
The ease of conducting business is currently the highest in the world. As a result, this country is a hub of booming business opportunities, with minimal restrictions on opening new ventures.
Infrastructure is another pillar of business flourishment, which is already strong in the UK. There are ongoing projects which look forward to further improving transportation, marketing, communications, and other ancillary infrastructure.
Documents to Prepare When Opening a Subsidiary in the United Kingdom
The incorporation of a foreign subsidiary in the United Kingdom requires the submission of proper documents. First, you must register your company and collect the ‘certificate of incorporation.’ This is a legal sanction of your company and will show its formation date and company number.
This section comprises your checklist for incorporation of a foreign subsidiary in the United Kingdom.
To set up a private company, the following personal information is required about self and shareholders:
- ~First name of the father
- ~Maiden name of mother
- ~Contact number
- ~Passport number
- ~National Insurance Number
Complete submission of these documents also requires a fee of £12, which you can deposit via card. If you want to drop the ‘Limited’ tag from your company, you must register via post.
You will also need:
- ~A ‘Memorandum of Association’ is an agreement from the initial shareholders that they agree to form the company
- ~An “Article of Association” containing the rules to be followed in the company
- ~Office address
What Business Forms Can United Kingdom Subsidiaries Take?
For the incorporation of a wholly-owned subsidiary in the United Kingdom, any overseas parent company needs to own 100% of its shares. If the shares are 50% or more, the companies are called subsidiaries. These subsidiaries are entirely separate legal bodies subjected to UK law.
So, to establish your subsidiaries in the United Kingdom, you should look up their official website for applicable business forms, including registration forms. United Kingdom subsidiaries are often private, either limited by guarantee or shares.
United Kingdom Subsidiary Laws
Subsidiary company formation in the United Kingdom requires you to follow their subsidiary laws. All companies based in the UK must conform to the Companies Act of 1985 and 2006.
- ~50,000 pounds worth of shares should be in the hands of the public.
- ~25% of these shares should be paid before the company begins trading.
- ~Must have two directors at least.
- ~Must have one company secretary.
- ~No minimum capital is required.
- ~It doesn’t need to keep shares open to the public.
- ~At least a single director.
Post Incorporation Compliance
After registration, the compliance for a foreign subsidiary in the United Kingdom includes the following:
- ~Display the registered office
- ~Get the office name and CIN.
- ~Set up the contact details of the company.
- ~Issue a share certificate to your shareholders.
- ~Appoint an auditor.
- ~Open a bank account for transactions.
Taxation of United Kingdom Subsidiary
Before setting up a subsidiary company in the United Kingdom, you should know taxation details. Compared to other countries' tax structures, the UK tax regime is simpler. This section gives you details on the taxation of foreign subsidiaries in the United Kingdom.
- ~Any employment generated in the United Kingdom is subjected to tax at their source, under PAYE.
- ~Any employer or employee operating in the United Kingdom is also subjected to National Insurance Contributions or NIC.
Both these deductions are payable to HMRC, either quarterly or monthly.
Any subsidiary business in the United Kingdom which produces goods and services is charged a sales tax or Value Added Tax (VAT).
- ~VAT is charged at 20% for the majority of commodities and services.
- ~The threshold for VAT is 85,000 pounds for 12 months.
- ~Any company that foresees their VAT threshold might cross soon is also liable to register for VAT.
- ~The companies usually submit VAT returns at quarterly intervals.
Corporate income tax
This tax is levied on the profits generated by companies.
- ~Corporation tax is charged at 20% in the United Kingdom.
- ~Taxable profits include capital gains, trading profits, investment profits, and likewise.
- ~The company must ensure payment within nine months after its accounting period ends.
- ~If the profit exceeds the annual rate of 1.5 million pounds for any given accounting period, the corporation tax should be paid in installments.
- ~If their profit exceeds 20 million pounds for any accounting period, they are liable to pay their corporation tax installments four months ahead.
- ~Royalty payments made by any company can also be subjected to 20% corporation tax.
Tax on diverted profits
A 25% tax can be levied on diverted taxes generated in the United Kingdom.
Tax Incentives for Businesses Setting Up a Subsidiary in the United Kingdom
Taxation of foreign subsidiaries in the United Kingdom also includes some fantastic incentives. These are:
- ~The domestic withholding tax rate can be reduced to 5% for a company that has beyond 10% issued share capital belonging to an overseas subsidiary.
- ~The United Kingdom also offers generous tax incentives for Research and Development (R&D). It can go as high as 230% for the companies which invest in UK R&D projects.
- ~Corporation tax is levied at 10% for those profits generated from patent inventions of the UK.
- ~The United Kingdom Government offers four venture capital schemes offering its investors lavish tax relief. These schemes are EIS or Enterprise Investment Scheme, SEIS or Seed Enterprise Investment Scheme, VCT or Venture Capital Trust, and SITR or Social Investment Tax Relief.
Other Important Considerations
Subsidiary company formation in the United Kingdom is a lengthy and costly process. Also, apart from the legal requirements, you must factor in other essential considerations. For starters, you should weigh your monetary obligations because an overseas business expansion will surely put some pressure on your pocket. Plus, you must think about the social and cultural differences as your teams must be aligned with the country’s work ethics and rules.
How Multiplier's Employer of Record Can Help You Hire & Expand in the UK?
Setting up a subsidiary in the United Kingdom for the long run can give you soaring revenues and an opportunity to expand in the other European markets. In addition, the United Kingdom can offer you a skilled workforce, and you can take advantage of its excellent tax incentives.
Planning for a business expansion takes considerable time, let alone its establishment in a foreign country. So to ease this bumper in your company's growth, why not take the help of a third-party service provider like Multiplier?
Multiplier takes care of all the hassle that comes with entry to a new market so that you don’t have to break a sweat. It makes sure that your employment contracts are thoroughly in tune with the domestic laws and takes care of your employees' onboarding, payroll, and management!
Frequently Asked Questions
How are subsidiaries different from other companies?
Subsidiaries are those companies that are a part of another parent company. Some wholly-owned subsidiaries in the United Kingdom examples include Volkswagen and Airbus.
Do subsidiary companies in the UK need to pay taxes?
Yes, the companies which are earning profits in the UK are subjected to the tax laws of the UK. They have to bear 20% income tax and other taxes.
Which is the most commonly occurring business type in the UK?
The private companies are the ones that occur more frequently in the UK. These companies are either limited by their shares or by guarantee.