Set up a company in the UK
Reasons to set up a company in the UK
US citizens that want to do business in the UK or Europe often choose to set up a company in the UK. The UK is an easy place to do business and has a relatively low corporate tax rate. It is also part of the European Economic Community (EEC), which means that there is free movement of goods and people between the UK and other European countries.
Impact of Brexit on a decision to set up a company in the UK
It is unclear how Brexit will alter the trading relationships between the UK and Europe, but it is likely that little will change until at least 2019/20. It seems to us that trade between the UK and Europe will remain strong and relatively simple for the foreseeable future. Whatever happens, it seems probable that businesses and companies will have plenty of time to readjust. For people that see Brexit as a real risk (which we do not) we suggest that they might consider the possibility of setting up a company in Ireland. Click here for information on setting up a company in Ireland.
Practical points for a UK company
What type of company should you set up in the UK
You can use one of two main types of companies for business purposes in the UK:
- UK private limited liability company (Ltd)
- UK public limited liability company (PLC)
A company is a legal entity in its own right. It is separate and distinct from the directors that run it and the shareholders that own it. Shareholders own shares. Their financial risk is usually limited to their financial investment plus any unpaid share capital. If the company fails, then they will not usually lose more than this. The table below shows the main factors to consider when setting up a company in the UK.
Table – Points to consider if you want to set up a company in the UK
Private limited liability company (Ltd)
Public limited liability company (PLC)
|Minimum share capital||
No minimum capital requirement
Minimum capital requirement of £50,000. 25% must be paid
|Minimum number of directors||
No requirement to have a company secretary
Must have a company secretary, who may also be a director
|Number of shareholders||
1 or more
1 or more
No objects clause (can undertake any activity)
Activities limited to the objects clause in the memorandum
|Annual General Meeting||
Can dispense with an AGM
Must have an AGM
Not for “small” companies
Required for all PLCs
Cannot offer shares or debentures to the public
Can offer shares and debentures to the public
Companies usually qualify for a “small” audit exemption if any 2 of the following apply: turnover of no more than £10.2 million; assets worth no more than £5.1 million; 50 or fewer employees on average. Note that the audit exemption does not apply to PLCs.
Most people set up UK private limited liability companies
Most people who set up a company in the UK, usually choose to set up a UK private limited liability company (Ltd) rather than a UK public limited company (PLC). The main reasons for this are that UK private limited companies:
- have no minimum share capital requirement
- may have just one director
- do not need to have a company secretary
- have low annual compliance costs
- administrative running rules are not very burdensome.
One can convert a private limited company into a public limited company, and vice versa.
Who can run and set up a company in the UK
Any person, regardless of their nationality or domicile, can run and set up a company in the UK. Unlike Ireland, there is no requirement for UK companies to have a UK or European Economic Area resident director.
Who can work in the UK
Anyone can set up a company in the UK. However, if you want to work in the UK then you will probably need a visa, even if you have set up a company in the UK. Most entrepreneurs that come from outside of the European Economic Area and set up a company in the UK will apply for a tier 1 (Entrepreneurs) visa. To apply for an Entrepreneurs Visa, you will need to demonstrate that you have at least £50,000 investment funds. There are different eligibility requirements depending on whether you have access to £50,000 or to £200,000. Click here for more information.
The English corporation tax system
A company set up in the UK (by which we mean England) will pay tax on its worldwide profits (income plus capital gains). Foreign companies that trade in the UK through branches pay tax on the profits of the branches. Companies that have no physical or agency presence in the UK don’t usually pay UK corporation tax.
English companies pay corporation tax at a rate of 20% on profits made before 31 March 2017; 19% on profits made between 1 April 2017; and 17% on profits made after 1 April 2020. This compares to the average corporation tax rate paid in the US of 35-40%.
Where will the UK company that you set up be taxed
The standard rule for companies operating in the UK
The normal rule is that the laws of the country concerned determine the tax residency of a company. This can lead to problems if a company is deemed to be tax resident in more than one country. In such cases, there is usually a double tax treaty that provides a “tie-breaker” rule. These tie breaker rules will determine the company’s tax residency. The tie breaker rules, contained in most of the UK’s tax treaties state that a company will pay tax in the UK if it is:
- managed from the UK; and
- economically active in the UK; and
- not established in the UK only to avoid paying taxes in another country.
Companies will normally pay tax in the UK if they follow all these rules. If they don’t, they will pay tax where they operate or where their management makes decisions. For example, consider a UK company that has an establishment in Italy, or where its directors make decisions in Italy. In these cases, the company will probably have to pay tax in Italy. Click here – UK / Italy Tax Agreement – , which is a fairly typical UK tax treaty.
The rule for US companies
The tie-breaker clause contained in most UK tax treaties says that a company managed in one country will pay tax in that same country. The UK / US tax treaty is different in that it is the company’s place of incorporation that is important. If a US incorporated company is managed from the UK then the treaty says that it is up to the US and the UK authorities to agree its tax residency. The treaty then goes on to say that if the authorities don’t agree, then the company will not be able to claim normal UK tax treaty benefits. This can mean that a company normally be able to claim UK tax residency may not be able do so. Click here for the UK / US tax treaty
Time to set up a UK company
We can usually set up a UK company (Ltd or PLC) in a day. In the case of companies that need special rules it will take longer.
Cost to set up a UK company
The cost to set up a company in the UK is relatively low. However, the total cost will be higher because you will also need usually to register it for VAT and payroll and open a bank account. These registrations, depending on the complexity of the company, can take longer.
What documents will you receive
Once your UK company is set up you will receive a “Certificate of Incorporation”, which confirms that the UK company is legally constituted, and a “Statute”, and establishes the rules that your UK company and the directors must follow. In addition, shareholders will receive share certificates.
Rules the UK company must observe
Directors must act in the interests of the company and not in their personal interests. At the end of each fiscal year a UK company is required to present financial statements in accordance with the rules of the UK and pay UK taxes.
Information needed to set up a UK company
Opening a UK company is relatively simple/ For example, if you want to register a UK limited company with Companies House you will need:
Other relevant information can be found at the site GOV UK