What’s in the Spring Budget for startups
March 22, 2023
We’ve got you covered with the key takeaways for startups, from Spring Budget 2023.
Thinking of doing business in the UK?
As your startup gains traction here in Australia, you might be thinking of expanding and doing business in the UK too.
And why not – one of the lowest corporation taxes in the G20, access to Europe’s 500 million consumers, entrepreneur visas … etc!
So, what do you need to know about doing business in the UK and how do you make it happen? Here’s the lowdown.
Opportunities for a startup in the UK
It almost goes without saying that the biggest opportunity of starting up in the UK is the size of the market.
But we’ll say it anyway.
With 66 million people, the UK market is roughly three times the Australian market. Plus, there’s the overall European market to consider too (500 million consumers, as we said above).
There’s also the fact that the UK has a number of policies designed to make it easier for entrepreneurs and startups, such as:
- The Enterprise Investment Scheme, which provides tax relief to investors who buy shares in your company, and thereby provides an incentive for them to invest
- Tax schemes that make it attractive (from a tax point of view) for your UK employees to have shares in your company
And then there’s the feeling that London is the centre of the world, with direct flights to more than 330 places and overlapping office hours with countries that generate 99% of the world’s GDP.
Challenges of doing business in the UK
With a bigger market comes more opportunity, yes, but also more competition.
And in the UK, the competition is pretty strong, with London described as Europe’s high tech hub producing one in five of the fastest-growing companies in Europe.
So if you’re thinking of doing business in the UK, go hard … or go home!
Getting a UK visa
Once you’ve decided to go ahead, you need to allow a few months – three to be precise – to get an entrepreneur visa.
Compared with other countries, these are relatively easy to get but there are eligibility requirements, including having enough money in the UK (currently 50,000 pounds) either by yourself or with one other person.
Read all the UK entrepreneur visa details and how to apply here.
Or if you’re sending someone else over to set up your UK office, you need to look into the UK’s sole representative visa (officially called ‘a representative of an overseas business’ visa).
Be aware that you can’t access this visa pathway if your UK business is already trading (including having any signed customer or commercial contracts or employee contracts). And you can only use this visa for one person, as the name suggests.
Setting up a legal entity
Once you have your visa, you need to set up a legal entity, usually either:
- A UK private limited company (known as a ‘subsidiary’) OR
- A UK branch of your Australian company (known as a ‘UK establishment’)
And just like here, you can do the set up paperwork yourself if you have the time and inclination or an accountant (including us thanks to our UK contacts) can do it for you.
So how do you choose which legal entity to set up? There are pros and cons to each. Here are the main things to consider.
UK private company
(either as a wholly owned subsidiary or as a separate company with a mirrored shareholding)
- Customers and suppliers often prefer dealing with a UK company
- As a subsidiary, it is a separate legal entity from the parent company (your Australian company) for tax purposes, even though it will be wholly owned by it
- It must file, on public record, annual accounts and pay UK corporation tax on its profits
UK branch
(also known as a UK establishment)
- If you choose this option, it is legally the same entity as the parent company (your Australian company)
- This option often means you can recoup startup losses from your UK branch sooner because they can be offset against your Australian parent company’s profits
- Unlike a subsidiary, a UK branch does not have to file a corporate tax return (unless business is conducted in the UK by the branch on behalf of the Australian parent)
- A UK branch also needs to file publicly available annual accounts. And within a month of setting up a UK branch, you need to register it with the Companies House.
UK taxes to be aware of
There are a few different UK taxes that you’ll need to plan for, namely:
- Corporation tax (company tax), which you need to pay on any profits that your UK business makes (no matter what legal set up you choose). This is currently a flat rate of 19%, set to be reduced to 18% by 2020. It’s your obligation to calculate your tax and make sure it’s paid on time, and you also need to file an annual return of your company’s results
- Income tax, which is similar to the pay-as-you-go (PAYG) system in Australia, except it’s called pay-as-you-earn (PAYE). The Brits are always that much more by-the-book, right?! Just like here, it is deducted monthly from an employee’s salary (and paid to the HMRC) on a sliding scale depending on how much they earn (between 0-45% of their pay)
- National insurance, which is the UK’s social security mechanism. It is a tax for employers and employees as a percentage of each employees’ salary. As an overseas national there’s a chance you might be exempt but make sure you seek expert advice on this
- Value-added tax (VAT), which is like our GST system. You have to register for and pay it if your annual turnover reaches the threshold (85,000 pounds/year currently). The amount of VAT you need to pay depends on the goods/services you supply. It’s best to get expert advice on this
Just like in Australia, expert advice on setting yourself up tax efficiently and making sure you meet your tax obligations is often invaluable (you might expect us to say that but it is true!).
R&D tax incentive in the UK
This is definitely worth knowing about. Just like in Australia, you can get cash back on your research and development (R&D) expenditure each year, subject to certain criteria.
And in the UK, you can claim up to 33% of your R&D expenditure back (and while that’s less than here in Australia, you can claim your R&D globally). Seek expert advice on this to make sure you can make the most of what you’re eligible for.
Help finding an office, bank, insurance …
Yep, the list goes on.
You might find this guide by London & Partners helpful. Likewise, getting in touch with them – they are the promotional company for London so seek their help as much as you need to. It’s free!
Before you go
As with all our blogs, please don’t take this as personal tax or financial advice – speak to us for that by booking a free 30 minute call.
And as dedicated startup accountants, we can give you the right advice about doing business in the UK and put you in touch with the right people for visas, grants and more. We’d love to help however we can.
Pic by Pixabay on pexels.com
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