How to Start a Business in UK as Foreign Citizens?

Are you a foreign citizen dreaming of starting a business in the United Kingdom? With its thriving economy and global opportunities, the UK is an attractive destination for entrepreneurs. However, navigating the process can be complex. This comprehensive guide will walk you through the essential steps and provide up-to-date information on starting a business in the UK as a foreign citizen. From choosing the right business structure to understanding visa requirements, taxation, and more, this guide will help you embark on your entrepreneurial journey with confidence.

Business Types in the UK

Sole trader: As a sole trader, you can run your business as an individual. This is the simplest and most common business structure in the UK. Considerations include registering for VAT (Value Added Tax) if your annual turnover exceeds the threshold and choosing a unique business name.

Partnership: A partnership involves two or more individuals who share the responsibilities and profits of the business. Establishing a clear partnership agreement outlining each partner’s rights, obligations, and profit-sharing arrangements is important.

Limited companies: A limited company is a separate legal entity from its owners. It offers limited liability protection, meaning the shareholders’ personal assets are generally protected in case of business debts. Setting up a limited company involves registering with Companies House, appointing directors, and issuing shares.

Limited Liability Partnership (LLP): An LLP combines elements of a partnership and a limited company. It provides limited liability for its members while offering flexibility in terms of internal management. Members have specific duties and responsibilities outlined by law.

Apply for a visa: Foreign citizens typically need a visa to establish a business in the UK. Consider options such as the Innovator Visa, Startup Visa, or Global Talent Visa, depending on your circumstances and business plans.

Write your business plan: Craft a comprehensive business plan that outlines your goals, target market, financial projections, and marketing strategies. This document will be crucial for obtaining funding and making informed business decisions.

Choose your business structure: Evaluate the various business structures available in the UK and select the one that best suits your needs, whether it’s a sole trader, partnership, limited company, or LLP.

Decide on a company name and address: Select a unique and memorable name for your business, ensuring it complies with the regulations set by Companies House. Additionally, provide a registered office address where official correspondence can be sent.

Register with HM Revenue and Customs: Register your business with HM Revenue and Customs (HMRC) for tax purposes. This includes obtaining a Unique Taxpayer Reference (UTR) and registering for applicable taxes, such as income tax, corporation tax, and VAT.

Review any additional rules that apply to your line of business: Depending on your industry, certain licenses, permits, or certifications may be required. Research and comply with industry-specific regulations to ensure legal compliance.

Startup Visa: For early-stage entrepreneurs with an innovative, scalable business idea endorsed by an approved endorsing body.

Global Talent Visa: For individuals with exceptional talent or promise in specific fields, including science, technology, engineering, humanities, arts, and digital technology.

Establishing a Branch in the UK as a Foreign Company

• Evaluate the need for a UK branch: Consider the strategic reasons for establishing a branch in the UK, such as accessing the local market, expanding operations, or improving customer service.
• Research legal requirements: Familiarize yourself with the legal and regulatory framework for establishing a branch in the UK. Understand the relevant laws, such as the Companies Act 2006, and seek legal advice if necessary.
• Register with Companies House: Complete the registration process with Companies House, the UK’s official registrar of companies. Prepare and submit the necessary documents, including a completed Form OS IN01, which outlines details about the foreign company and its operations.
• Provide relevant documents: You will typically need to submit supporting documentation along with the registration form. This may include certified copies of the foreign company’s constitutional documents, such as the memorandum and articles of association, and proof of the company’s existence and good standing in its home country.
• Appoint a representative: Nominate an individual or a corporate entity as the official representative for the UK branch. This representative will act as the point of contact and may be responsible for fulfilling various legal obligations on behalf of the branch.
• Comply with reporting and accounting requirements: As a registered branch in the UK, you will be subject to ongoing reporting and accounting obligations. Ensure you understand and comply with these requirements, such as filing annual financial statements, maintaining accounting records, and adhering to UK accounting standards.
• Consider taxation implications: Understand the tax implications of operating a branch in the UK. You may be subject to UK corporation tax on profits generated by the branch, and it’s advisable to consult with a tax professional to ensure proper compliance and optimize your tax position.
• Establish a UK bank account: Open a UK bank account for the branch to manage financial transactions and facilitate local operations. Research different banking options and choose a reputable bank that meets your business needs.

Financial management: Maintain accurate financial records and implement robust accounting practices. Consider hiring an accountant to assist with bookkeeping, tax filings, and financial reporting. Stay informed about UK tax laws and meet all tax obligations, including corporation tax, VAT, and payroll taxes.

Company administration: Keep your company’s records updated with Companies House. This includes maintaining accurate and current information about directors, registered office addresses, and company structure or share capital changes.

Governance and decision-making: Conduct regular board meetings and keep proper minutes of the discussions and decisions. Comply with corporate governance principles and ensure transparency and accountability within your company’s operations.

Employment and human resources: Understand UK employment laws and regulations, including contracts, wages, working hours, holiday entitlements, and employee rights. Implement fair employment practices and consider obtaining employer’s liability insurance to protect against workplace-related claims.

Intellectual property protection: Safeguard your intellectual property rights in the UK. Consider registering trademarks, patents, or copyrights to protect your brand, inventions, and creative works.

Business Bank Account

Documentation and requirements: Prepare the necessary documentation to open a business bank account. This typically includes proof of identity (e.g., passport, driver’s license), proof of address (e.g., utility bill, bank statement), proof of business registration (e.g., Companies House registration certificate), and possibly a business plan.

Application process: Contact the chosen bank to inquire about their account application process. Some banks allow you to apply online, while others may require an in-person appointment. Provide the requested information and documentation, complete the application form, and follow any additional steps as instructed.

Considerations and fees: Take note of any fees associated with the business bank account, such as monthly maintenance fees, transaction fees, and charges for additional services. Compare these fees across different banks to choose the most cost-effective option for your business.

Value Added Tax (VAT): VAT is a consumption tax levied on the value added to goods and services. The standard VAT rate in the UK is 20 percent. However, certain goods and services may qualify for reduced rates (e.g., five percent for home energy) or exemptions (e.g., certain food items).

Income Tax: Sole traders and partnership partners are subject to income tax on their business profits. The income tax rates in the UK range from 20 percent to 45 percent, depending on the individual’s total income.

National Insurance Contributions (NICs): Employers and employees must pay NICs, which fund state benefits and the National Health Service (NHS). NIC rates vary based on income levels and employment status.

Dividend Tax: If you operate as a limited company and receive dividends from your company, dividend tax may apply. The dividend tax rates are 7.5 percent for basic rate taxpayers, 32.5 percent for higher rate taxpayers, and 38.1 percent for additional rate taxpayers.

Self-Assessment: UK business owners must complete a self-assessment tax return each year. This involves reporting business income, expenses, and other relevant financial information to calculate the tax owed.

Capital Gains Tax: If you sell assets that have increased in value, such as property or shares, you may be liable for Capital Gains Tax. The tax rate for capital gains depends on the individual’s total taxable income and the nature of the asset sold.

Research and Development (R&D) tax credits: The UK offers R&D tax credits to incentivize innovation and research activities. Eligible businesses can claim tax relief on qualifying R&D expenditures, reducing tax liability, or receiving cash refunds.

Business Insurance

Protect your business by obtaining the necessary insurance coverage. Key policies to consider include Employers’ Liability Insurance, Public Liability Insurance, and Professional Indemnity Insurance, depending on the nature of your business activities.

• Comply with equal opportunity and non-discrimination policies during the hiring process.
• Verify the immigration status and eligibility to work in the UK for prospective employees.
• Utilize online job portals, industry-specific forums, local job centers, recruitment agencies, and referrals to find qualified candidates.

Rules for EU Citizens

• EU citizens must now apply for the appropriate visa or immigration status to work or start a business in the UK.
• The EU Settlement Scheme allows EU, EEA, and Swiss citizens who were resident in the UK before 31 December 2020 to apply for settled or pre-settled status, granting them the right to live and work in the UK.
• EU citizens who arrive in the UK after 31 December 2020 may need to apply for a work visa or explore other immigration routes, such as the Skilled Worker Visa or Startup Visa.

Frequently Asked Questions about Starting a Business in the UK as a Foreign Citizen