Setting up a UK business in the post-Brexit and COVID world

Setting up a UK business in the post-Brexit and COVID world

We may be experiencing challenging times as a nation, but the UK is still definitely ‘open for business’.

As a country, we’re still looking to cement our reputation as a great location for setting up a new office and expanding the European reach of your business empire.

But how attractive will the UK’s ‘green and pleasant lands’ look once the transitionary period for Brexit is over? How easy will trade be once the UK is outside of the European Union (EU)? And what impact will the ongoing coronavirus pandemic have on the UK’s ability to do business?

Tara Mellett explains why the UK is still an excellent location to open a new business, but it’s also vital to factor in the post-Brexit challenges.  

 

Is the UK still open for business?

I joined Haines Watts Slough back in July of this year, but I’ve been helping companies to set up new UK offices for over 10 years. I specialise in working with US, Canadian and European clients that want to create a UK subsidiary and that’s given me a deep understanding of the aims, requirements and processes involved in setting up a brand new UK operation.

If you’re a US or Canadian business that’s growing and wants to expand into Europe, the UK is the obvious starting point. Having the same language makes a big difference and the UK is often seen as a first step into that wider European market.

Before Brexit, setting up business in the UK was a no brainer. We were open for new companies and the UK government made it a very easy place to do business, in all aspects, including the tax and legal elements.

It was easy to set up a UK company, and you also had a range of tax incentives, encouraging enterprise and innovation with initiatives like the Research & Development (R&D) tax credit.

None of this has changed in any fundamental way. What’s changed, on the whole, is the economic situation that the UK (and the World) currently finds itself in.  

 

How do you set up a UK subsidiary?

The main advantages of choosing the UK as your European base are still the same. You can incorporate your new business within 24 hours, and you just need one director and a UK office to do this. It’s fast and reasonably straightforward.

There are other elements to factor in, of course. You need to contact HM Revenue & Customs (HMRC) and complete your registrations for corporation tax (CT), pay-as-you-earn (PAYE), and value-added tax (VAT) if your taxable turnover will be over £85,000 per year.

You also need to look into Employer’s liability insurance, property insurance and other areas that minimise risk and keep you covered from a legal perspective.

I’d generally always encourage UK subsidiaries to register for VAT even before they hit the £85,000 threshold. You can then start to reclaim your VAT costs from any eligible expenses that you’re incurring. However, it’s important to work out whether becoming VAT registered earlier than necessary will be financially viable. If you are pre-revenue, you need to be claiming back a large enough lump sum to cover the admin costs of filing VAT returns, so it’s worth factoring this in and you would of course need to start charging your customers VAT.  

 

Why choose the UK?

Your reasons for choosing the UK to set up a new business or subsidiary will vary, depending on what kind of business you are and what market sector you trade in. But there are certainly still plenty of positive benefits when opting to use the UK as a base.

Important plus points include:

• We have a big population – The UK has a population of 67.89 million people, making it the third most populous country in Europe, after Russia and Germany. That large population provides your new UK subsidiary with a big consumer market to target, a good customer base and a large talent pool from which to hire new staff.

• We usually have a positive GDP – the Gross Domestic Product (GDP) of the UK has grown steadily since the 1950s, so, under normal circumstances, the UK would be a sound economy to invest in. Brexit and Covid have both impacted negatively on GDP in 2020, so it’s important to factor this into your decision-making, however as this is currently a worldwide issue, it is wise to compare to GDP globally.

• Our corporation tax system is attractive – UK corporation tax (CT) is currently paid at 19%, making it a competitive rate within Europe. As a result of the COVID-19 pandemic, Governments around the world introduced unprecedented measures to support businesses facing exceptional challenges. Tax relief and deferral has formed a key part of these support measures. Despite the outlay on financial support during the pandemic, I think it’s unlikely in the short term at least that the CT flat rate will be increased to claw back more tax revenue. If there are medium-term CT changes then we may see the revival of the small companies and main rate perhaps The Government still needs the country to look attractive, a place to take risks and be innovative, so we need that comparably lower CT rate. Governments around the world will all need to recoup spending and so we may see global corporation taxes increasing and therefore the UK should be able to remain low in comparison, even with its own increase. In the short term, tax rises are unlikely as the economy needs to first get on the road to recovery.

• We encourage innovation – if you’re advancing the course of your industry or science/technology then you can claim R&D tax relief. It’s one of the biggest tax reliefs available to SMEs and can be worth up to 33.35% of your R&D expenditure. Eligible expenses include staff costs, materials and even your energy costs, helping you to continue those R&D activities and grow your business. The Patent box scheme also encourages innovation, allowing your company to pay a reduced rate of 10% Corporate Tax if you exploit patented inventions and innovations in the course of trading.

 

When assessing the suitability of the UK for your business, these benefits all combine to make the UK a very attractive proposition in many ways. But, as we’ll see, there are some negative impacts to consider, especially now that the specific effects of Brexit are beginning to be understood more widely – particularly when it comes to value-added tax (VAT).  

 

The impact of Brexit on your VAT

VAT is one of the biggest changes post-Brexit. The impact of which will depend on what your UK business is selling.

 

Goods

Prior to Brexit, you didn’t need to worry about import duties in Europe as the UK was part of the EU.

Post-Brexit, UK businesses selling goods into the EU will have to pay import duties upon entry. The impact of this will depend on what kinds of goods you’re supplying.

If you are selling goods business-to-business (B2B), you would zero rate these goods as the EU is now outside the scope of UK VAT. VAT on Business-to-consumer (B2C) sales will need to be charged at the Country rate where the customer resides so you would need to register the UK company for VAT in that Country or, more likely, need to register an EU entity.

Import and export costs post-Brexit will impact your profit margin, so this needs to be factored into your planning, budgets and predicted profit margins.

Importing goods from the EU will also now incur import duties. For Non-EU businesses who are using the UK is their point of entry into the EU, you would need to look for an alternative entry point into the EU depending on where your final customers are and what makes sense logistically.

 

Services

If your business is selling services - (B2B) - this remains largely unchanged. Selling services to non-EU countries is outside the scope of VAT and services sold to EU businesses is covered by the VAT reverse charge.

If you’re selling a digital service to the end consumer which used to be covered by the VAT Mini One Stop Shop (MOSS) legislation, you’ll have to re-register in the EU for the MOSS non Union scheme to be compliant.

If you’re a (B2C) company, you’ll have to register for VAT in the country (or countries) that you’re selling into.

In terms of selling goods or services from the UK to outside the EU, there won’t be any real changes, selling out of the UK to the US, for example, won’t be affected (trade deal dependent!).

 

Movement of People

Brexit brings about the end of free movement of people between the UK and the EU but this will mean that all people have equal rights when coming to the UK.

COVID has obviously restricted movement globally anyway and so this will be a consideration when thinking about setting up a business in another Country.

The new immigration bill facilitates the government's plans for a new points-based immigration system.  

 

Kick-starting your new UK business

A key consideration is that your HQ doesn’t have to be London, it could be anywhere. The Thames Valley, for example, has many advantages, being cheaper to rent property, and having great transport links etc.

Your UK trading office address doesn't need to be an actual office, of course. You could work from home or from a co-working space. You just need a good location, the right transport links and the right talent.

If the UK looks like the right European base for your business, now is the time to start setting down the right foundations, getting your compliance, governance and planning sorted, so you’re ready to hit the ground running. One thing about the Pandemic is that we are all in this together and businesses must continue to strive to grow. If you were ready to expand your business before the pandemic because you have a viable product or service, then - with the right support - you are still ready now.

 

Helping you navigate uncharted waters

Main areas where Haines Watts can help you set up a UK business include:

• Setting up the company

• Registering you for all the relevant business taxes

• Helping you meet your legal and compliance requirements

• Providing general business advice from our network of specialists

• Giving you the insight of 90 years’ experience in helping owner-managed businesses

• Connecting you with other great companies in your industry

• An end-to-end service, from incorporation through to opening the doors of the business.

 

Talk to one of our Slough Business Advisers about setting up a UK subsidiary.