Setting up a business in the UK. 25 September 2018

Transcription

1 Setting up a business in the UK 25 September 2018

2 Contents 1. Overview 3 2. Legal considerations 4 3. Statutory accounting and reporting 5 4. Corporation tax compliance 7 5. Value-added tax 9 6. Employment taxes Addressing the challenge How EY can help 14 Setting up a business in the UK 2

3 1 Overview For companies considering setting up operations in the UK, the key finance and tax issues include: Legal considerations in complying with the UK statutory framework Statutory accounting and reporting Corporation tax compliance Value-added tax Employment taxes We have a dedicated, experienced inbound team that supports companies looking to set up in the UK. Our service is called EY Absolute TM and is focused on coordinating all the services you need to set up your operations and remain compliant in the UK. Why businesses choose EY: Our UK team has significant experience of working with UK inbounds and providing UK tax and legal advice to multi-national companies. We have a delivery model that can be rolled out quickly and scaled up or down, on demand, in response to your business needs. EY is a global network of professionals and can therefore work with our colleagues within other jurisdictions, accessing efficiencies that the use of a single firm brings, as well as providing consistency and a greater assurance that all requirements are being met. This document provides a general introduction to the practicalities of complying with those issues as a business establishes itself in the UK. This document does not reflect any changes that may come about with the UK leaving the EU and we will issue an updated document in due course. It is not intended to be exhaustive, and, for example, regulated businesses will need to comply with additional licensing requirements specific to their business activities. It is not to be relied upon by any person or entity as accounting, tax, regulatory or other professional advice. If you require any further information or explanations, or specific advice, please contact us and we will be happy to discuss matters further. Setting up a business in the UK 3

4 2 Legal considerations 2.1 Setting up a UK company The process is straightforward, typically takes less than 24 hours and can be done online with the UK companies registry, Companies House. When all formalities have been followed, the Registrar of Companies will issue a certificate of incorporation which is evidence that the company is duly established and can begin trading. Businesses in the UK have the flexibility to decide their legal structure. For example, the articles of association that a company adopts can be highly tailored and there are a variety of structures to choose from to suit specific requirements. The documents that companies must file are kept on a public register, enabling transparency. Legal restrictions are not overly complex. For example, a private limited company can be incorporated with just one share with a nominal value of 0.01 and there are no restrictions on the paid up share capital required in a UK private limited company. Alternatively, a public company has minimum share capital of 50,000 with at least 25% of this being paid up in full. Repatriation of profits is also quite straightforward. For example, capital reduction is relatively simple (provided the private limited company is solvent), as are dividend payments (provided there are profits available for distribution). 2.2 Migration to the UK In certain circumstances, companies can migrate their tax residence from other jurisdictions into the UK by establishing their place of central management and control (CMC) in the UK. Care should be taken to retain CMC in the UK on an ongoing basis, to avoid crystallising unwanted exit charges on leaving the UK. 2.3 Register a UK establishment of an overseas company as a foreign branch Another option is to register a branch of a foreign company in the UK. This does not create a separate legal entity, but instead registers a foreign entity to do business in the UK. Registering a foreign branch can take up to four weeks, as additional information is required to complete the registration with Companies House. Setting up a business in the UK 4

5 3 Statutory accounting and reporting 3.1 Filing first set of statutory accounts A company is required to file its statutory accounts with Companies House. These statutory accounts are made up to the company s period end, also known as the accounting reference date. The first accounting reference period begins on the first day of incorporation. For all new companies, the first accounting reference date is set as the last day in the month in which its first anniversary falls. A company can set its first accounting reference period to between 6 and 18 months. However, it should be noted that extending an accounting period to more than 12 months can only be done once in a five-year period. Notification must be filed with Companies House to shorten or extend the accounting reference period and a notice to extend must be given before the end of the current accounting period that it is sought to extend. The first statutory accounts for a private company must be filed with Companies House within 21 months of the date of incorporation. The first accounts for a public company must be filed within 18 months of the date of incorporation. 3.2 Subsequent filing of statutory accounts After the first period, a company is required to file its statutory accounts with Companies House on an annual basis. An accounting reference period begins on the first day after the previous financial year. A company may make its accounts up to seven days either side of its accounting reference date. As with setting its first accounting reference period, a company can extend or shorten accounting periods. As noted above, extending an accounting period to more than 12 months can only be done once in a five-year period and notice to extend an accounting reference period must be given before the end of the current accounting period that it is sought to extend. There is no minimum length for accounting periods after the first period and no limit on the amount of times accounting periods can be shortened. Accounts for periods after the first accounting period need to be filed with Companies House within nine months of the period end. Setting up a business in the UK 5

6 3.3 Content of statutory accounts Statutory accounts must include: ³ ³ A balance sheet, which shows the value of everything the company owns, owes and is owed on the last day of the financial year. ³ ³ A profit and loss account, which shows the company s sales, running costs and the profit or loss it has made over the financial year. ³ ³ Notes about the accounts. ³ ³ A director s report. ³ ³ An auditor s report. The last two requirements are dependent on the size of the company or group. The balance sheet must have the name of a director printed on it and must be signed by a director. The statutory accounts must meet either International Financial Reporting Standards or New UK Generally Accepted Accounting Practice. The statutory accounts form is the starting point for the company s corporation tax return and determines the periods to be covered by the company tax return (see next section). Setting up a business in the UK 6

7 4 4.1 Corporation tax compliance Chargeability to UK corporation tax A company that is resident in the UK for tax purposes is liable to corporation tax on its worldwide profits and chargeable gains, with credit given for overseas taxes paid. Profits and losses arising from a foreign permanent establishment of a UK company may be excluded from the charge to UK tax by making an irrevocable election. A UK permanent establishment of a non-resident company is liable to UK corporation tax on trading income arising through the UK establishment, income from property or rights held in the UK and chargeable gains on the disposal of assets situated in the UK. A company is UK resident if it is incorporated in the UK or managed and controlled from the UK. The main rate for corporation tax for the financial year commencing 1 April 2018 is 19%. The Government has already enacted a reduction in the main rate to 17% for the financial year commencing 1 April Registration for UK corporation tax After the registration of a company with Companies House, the company will need to register with the UK tax authorities, HMRC, for corporation tax. This needs to be done within three months of starting to do business. This includes buying, selling, advertising, renting a property and employing someone. To register with HMRC for corporation tax online, a company will need its 10-digit Unique Taxpayer Reference (UTR). This will be posted to the company s address by HMRC, usually within a few days of the company being registered with Companies House. When the Registrar of Companies accepts the registration of a company or a UK establishment, it informs HMRC of the existence of the new company. HMRC will usually send a new company enquiry form called CT41G to the company to obtain information about the new establishment, including details of the nature of activities, date it started to trade, the date the annual accounts will be made up to. Setting up a business in the UK 7

8 If this form is not completed, HMRC will assume the accounting periods for tax based on the company incorporation dates and accounting reference dates for statutory accounting purposes. 4.3 Corporation tax return periods Companies are liable to corporation tax for each chargeable accounting period (CAP). This period cannot exceed 12 months. A CAP will not necessarily begin on the date the company is incorporated but when the company comes within the charge to UK corporation tax. This could be when the company starts to trade or acquires a source of income (e.g., bank deposit interest). A CAP ends on the first of a specified number of events including: ³ ³ The ending of 12 months from the beginning of the accounting period. ³ ³ An accounting date of the company. ³ ³ The company starting or ceasing to trade. ³ ³ The company becoming or ceasing to be UK resident. A subsequent CAP begins immediately after the end of the previous CAP, if the company is still within the charge to corporation tax. The company tax return (form CT600) is required to be submitted to HMRC 12 months after the end of the CAP; eg, a return for the period ending 31 December 2018 will be due for submission by 31 December Company tax returns must be filed online rather than in paper format. A company tax return comprises the CT600 form (including any supplementary pages), accounts and computations, together with any other supporting documentation. In all cases where a company tax return is filed online, the computations must be in ixbrl format. For most companies and organisations, accounts forming part of the return must also be in ixbrl format, but there are some exceptions. Where a company prepares a set of accounts covering a period exceeding 12 months (e.g., where the accounting reference date is extended), the company will be required to file two tax returns; one for the first 12 months and one for the remaining period. The total taxable profits would have to be apportioned between these periods. The filing date for both returns will be 12 months from the end of the accounting reference date for statutory accounts purposes. 4.4 Corporation tax payment dates A company that is defined as large for UK corporation tax purposes is required to make tax payments via the quarterly instalment payments (QIPs) regime. A large company is one whose profits for the accounting period in question are at an annual rate of more than the upper limit currently 1.5mn in force at the end of that period. There are some exceptions. For accounting periods ending on or after 1 April 2015, if a company has related 51% group companies, the 1.5mn threshold is reduced by dividing that number by the number of related 51% group companies plus one. The dates and the number of payments depend on the length of the accounting period. For accounting periods of 12 months, corporation tax is normally payable in four quarterly instalments, two of which are due before the end of the accounting period. In 2019, new rules will be brought in applying to the largest companies/groups with profits of over 20mn. These rules will bring forward the payment dates for those companies/groups. HMRC charges interest on late or underpaid instalments. This interest is tax deductible for corporation tax purposes. HMRC also pays interest on instalment payments that turn out to be unnecessary, are paid early or turn out to be too high. Any interest paid will be calculated from the later of the first instalment date or the point where an overpayment arises and will be taxable for corporation tax purposes. If a company is not within the instalment regime, it will have to pay its corporation tax nine months and one day after the end of the accounting period. Setting up a business in the UK 8

9 5 5.1 Value added tax (VAT) Scope of the tax VAT applies to the following transactions: ³ ³ The supply of goods or services made in the UK by a taxable person. ³ ³ The intra-eu acquisition of goods from another EU Member State by a taxable person. ³ ³ Reverse-charge services received by a taxable person in the UK. ³ ³ The importation of goods from outside the EU, regardless of the status of the importer. For VAT purposes, the UK consists of Great Britain, the Isle of Man and Northern Ireland. It does not include the Channel Islands or Gibraltar. A taxable person is any entity or person that is required to be registered for VAT. The term includes any entity or individual that makes taxable supplies of goods or services, intra- Community acquisitions or distance sales in the UK in the course of a business in excess of the relevant turnover thresholds. In the UK, the term taxable supplies refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate. In the UK, the following are the VAT rates: ³ ³ Standard rate: 20% ³ ³ Reduced rate: 5% ³ ³ Zero rate: 0% The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for the zero or reduced rate or an exemption. 5.2 Registration for VAT The VAT registration threshold for UK established businesses is currently 85,000 per annum. A business must register for VAT if its taxable turnover exceeds the VAT registration threshold in a 12 month period or if it is expected to exceed the threshold in a single 30 day period. A nil registration threshold applies to businesses not established in the UK (i.e. a business that does not have a fixed establishment in the UK). As a result, any non-established business that makes a taxable supply (not covered by an existing VAT simplification) in the UK is required to register for VAT, regardless of the value of the supply. Non-established businesses involved only in distance sales of goods to UK residents who are not taxable persons are subject to the distance selling threshold ( 70,000). A taxable person whose turnover is wholly or primarily zero-rated may request exemption from registration. Setting up a business in the UK 9

10 A business may register for VAT voluntarily if its taxable turnover is below the VAT registration threshold. A business may also register for VAT voluntarily in advance of making taxable supplies. In this case, the business needs to demonstrate to the UK VAT authorities it has the firm intention to make taxable supplies. Corporate bodies that are under common control and are established or have a fixed establishment in the UK may apply to register as a VAT group. A VAT group is treated as a single taxable person. The group members share a single VAT number and submit a single VAT return. No VAT is charged on supplies made between group members. Group members are jointly and severally liable for all VAT liabilities. EU VAT place of supply rules apply to business-to-consumer (B2C) supplies of digital services, such that supplies of such services to EU consumers are subject to VAT in the Member State where the customer belongs. Thus, where the customer belongs in the UK, UK VAT will be due. Any taxpayers making B2C supplies of digital services are required to register for VAT in each EU Member State where they have customers or register for the Mini One-Stop Shop which allows the simplified option of registering in one EU Member State from a business can submit VAT returns and pay the VAT due in all Member States. 5.3 VAT returns and payment VAT returns are generally submitted quarterly. VAT return quarters are staggered into three cycles to ease the UK VAT authorities administration: ³ ³ March, June, September and December ³ ³ February, May, August and November ³ ³ January, April, July and October Each taxable person is notified at the time of registration of the return cycle it must use. However, the UK VAT authorities will consider a request to use VAT return periods that correspond with a taxable person s financial year. In addition, a taxable person whose accounting dates are not based on calendar months may request permission to adopt nonstandard tax periods. Taxable persons that receive regular repayments of VAT may request permission to submit monthly returns to improve cash flow. VAT returns must generally be submitted by the last day of the month following the end of the return period. Payment is also generally due by this date. However, in most cases, taxable persons that submit their VAT returns electronically have an additional seven calendar days after the normal due date in which to file their returns and make payment (businesses that use the annual accounting scheme or are required to make payments on account do not qualify for this sevenday extension). UK VAT-registered businesses are not required to submit an annual VAT return in addition to their normal periodic (monthly or quarterly) VAT returns. The vast majority of UK VATregistered businesses (with some limited exceptions) are required to submit their VAT returns online (using the UK VAT authorities electronic VAT service) and pay any VAT due electronically. VAT records may be archived electronically in any location, provided that the authenticity, integrity and legibility of the content of source documents (invoice data) is protected and any records can be produced in a readable form (within a reasonable period of time) upon request by the UK VAT authorities. HMRC s Making Tax Digital (MTD) program will come into effect for VAT from 1 April From that date, businesses with a turnover above the VAT threshold limit will have to keep their records digitally (for VAT purposes only), and provide their VAT return information to HMRC using compatible software. Taxable persons that have an annual VAT liability of greater than 2.3mn must make payments on account, which are interim payments made at the end of the second and third months of each VAT quarter. The VAT return is due at the normal time together with a balancing payment for the period. EC Sales Lists and Intrastat declarations may also be required if goods are moved between EU Member States. Setting up a business in the UK 10

11 6 6.1 Employment taxes Initial considerations before employing staff for the first time Businesses in the UK must pay their employees at least the National Minimum Wage. The minimum wage a worker should get depends on their age and whether they are an apprentice. The National Living Wage is higher than the National Minimum Wage at 7.83 an hour currently and is paid to workers over 25. All employers need to pay the correct minimum wage, no matter the numbers of employees. It is important to check whether individuals have the legal right to work in the UK. Certain individuals have rights to live and work in the UK without restriction. Individuals who do not qualify for the right of abode and who wish to live and work in the UK must apply for the appropriate immigration document and/or entry clearance (visa). A Disclosure and Barring Service (DBS) check may also be needed if staff will work in a field that requires one: for example, with vulnerable people or security. Employers liability insurance will be required and the policy should provide cover of at least 5mn and come from an authorised insurer. Fines may be payable for not displaying a certificate of coverage or not making it available on request. A written statement of employment (including terms and conditions) must be delivered to all employees who will be employed for more than one month. Employers must register with HMRC for the purposes of the pay as you earn (PAYE) regime (HMRC s system for collecting payroll taxes). This must be done before the first payday but cannot be done more than two months before. HMRC advises that it usually takes up to five days to receive an employer PAYE reference number. There may also be a requirement to automatically enrol staff into a workplace pension scheme. Employers must enrol and make an employer s contribution for all staff who are aged between 22 and the State Pension age, earn at least 10,000 a year and normally work in the UK (this includes people who are based in the UK but travel abroad for work). Setting up a business in the UK 11

12 6.2 Employment taxes Employers are responsible for deducting income tax and national insurance from employee s wages. The employer pays the amounts deducted to HMRC each month. In addition to the employee s national insurance contributions deducted from gross pay, an employer must pay employer s national insurance contributions, a cost borne by the employer in addition to the employee s gross pay. Employer s national insurance is a tax deductible expense for the business. 6.3 Operating PAYE When paying employees through the payroll, deductions need to be made under PAYE. Payments to employees include their salary or wages, as well as things like any tips or bonuses, or statutory sick or maternity pay. From these payments, employers need to deduct tax and national insurance for most employees. Other deductions that may need to be made include student loan repayments or pension contributions. Records must be kept of: ³ ³ Payments made to employees and the deductions made. ³ ³ Reports and payments made to HMRC. ³ ³ Employee leave and sickness absences. ³ ³ Tax code notices. ³ ³ Taxable expenses or benefits. ³ ³ Payroll Giving Scheme documents, including the agency contract and employee authorisation forms. Employers operating PAYE need to complete certain tasks during each tax month (some in relation to the previous month). Tax months run from the 6th of one month to the 5th of the next. These tasks include: ³ ³ Recording employees pay. ³ ³ Calculating deductions from pay, applying the tax codes and notices received in respect of employees from HMRC. ³ ³ Calculating the employer s National Insurance contribution due payment will need to made on the employee s earnings above 157 a week. ³ ³ Producing payslips for each employee. ³ ³ Reporting pay and deductions to HMRC in a Full Payment Submission (FPS), using the HMRC PAYE Online service. ³ ³ Reviewing what is owed, sending an Employee Payment Summary by the 19th of the following month and paying HMRC by the 22nd of the following month (or the 19th if paying by post). Employers also have annual reporting obligations including: ³ ³ Returning a year end submission to HMRC by 19 April. ³ ³ Sending individual forms P60 to employees. This form shows an employee the tax paid on his or her salary in the tax year. ³ ³ Sending P9D, P11D and P11D(b) to HMRC and P9D and P11D to employees by 6 July. These forms show the cash equivalents of taxable benefits and expenses that have been provided during the tax year to directors and employees. ³ ³ Paying any Class 1A National Insurance liability on taxable benefits in kind to HMRC by 22 July. Employers have reporting obligations in respect of new joiners and leavers. 6.4 Other employment tax issues to consider A PAYE Settlement Agreement (PSA) is an agreement with HMRC which allows an employer to meet the tax and national contributions on certain targeted benefits provided to its employees on a grossed up basis. The PSA is calculated separately to the normal payroll with no involvement required from the employees concerned. Where employees visit the UK for short-term business trips, it is important that the implications of this are considered and dealt with pro-actively. This is an area which the HMRC has increasingly focused on and generally increased its expectations and scrutiny in terms of employer compliance and reporting. Setting up a business in the UK 12

13 7 Some Addressing the challenge of the challenges of setting up a business in the UK include: The reputational risk of noncompliance with reporting requirements in a new territory. Being able to scale finance processes quickly enough to meet the demands of a growing business. Difficulties faced in recruiting and retaining key finance staff with the right skills. Finding and deploying the right technology to deliver the right management information. It is, therefore, important that the finance function is in place and ready to respond as soon as possible before the business starts operating in the UK. However, having a local team set up and trained in advance may not always be possible. Alternative options include: Using a pre-existing finance team from another location to cover while a local team is established. Outsourcing your finance function to a third party who takes full control of your finance operation. Using a managed service solution that can scale up quickly to provide a virtual finance function while allowing you to retain control and visibility of your data. Setting up a business in the UK 13

14 8 How EY can help How can EY Absolute assist with the set up and running of your UK business? What is EY Absolute? For clients looking to enter the UK market, EY Absolute provides a comprehensive, set up service which allows for a quick and smooth transition for your UK business. This can help you to meet all UK requirements and establish a robust foundation for the ongoing running of the business. Our approach Our service has been designed to help businesses seeking finance, accounting, tax and legal support. These services are commonly required by inbound or startup businesses that are new to the UK and looking to enter and scale quickly. Our approach centres on the following key principles: We focus on understanding your current business plans and future objectives, Based on this, we proactively navigate you through the establishment of your UK business. Where appropriate we can provide a comprehensive service that covers bookkeeping, accounting, tax, payroll, corporate secretarial and legal services, which means you do not have to engage with multiple service providers. You will be given a single point of contact within EY who will coordinate the advice you need and who will identify and provide access to specialist teams should you require additional support. Once your business is set up, we provide ongoing support with dayto-day finance operations, giving you peace of mind that your finance function is under control and allowing you to focus on building your business in the UK. As you grow and establish your operations and the administrative burden of keeping compliant in the UK increases, our team is able to respond quickly by scaling with you. There is no requirement for you to hire additional finance resource as we can bring in extra support as and when you need it. Our service is also designed to help inbounds who already have established businesses in the UK but who may be looking to review and improve the efficiency of the current UK finance function. This may be driven by cost pressures from Head Office or a need to standardise processes and reporting for multiple UK entities. We can review your operations and provide guidance on how to achieve finance function effectiveness. Setting up a business in the UK 14

15 Contact us If you would like to meet one of our team to find out more about how EY Absolute could support your business, please contact: Tina Gill Partner, EY Absolute Julie Hadfield Partner, EY Absolute EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF Ernst & Young LLP. Published in the UK. All Rights Reserved. ED None Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. ey.com/uk Setting up a business in the UK 15