US Companies Expanding to the UK

Are you an American company thinking of setting up a business in the United Kingdom? The country has an illustrious history of international trade and has long welcomed foreign companies to its shores.

Home Businesses from the US

Favorable business conditions

The UK may have left the European Union following years of Brexit negotiations, but there has never been a better time to expand into the country.

Even though Brexit negotiations are still underway, there has never been a better time to expand into the UK. US companies own approximately 9,000 UK-based businesses, more than any other country.

For many American enterprises, the UK is the key to unlocking the vast potential of business opportunities in the Eurozone with its approximately 500 million consumers.

To fully grasp UK and European business openings, you need accounting and tax experts who have experience across a wide range of industries in multiple countries. This is where the international team of chartered accountants at St Matthew come in.

We can help you easily navigate the complexities of UK legislation, offering insightful advice and practical support. Whatever your needs, you’ll have access to a great team of skilled technical specialists.

There is no one-size-fits-all to our approach. We will always tailor our services to meet your needs in the UK, adapting as you change, mirroring your growth. We have offices in the US and the UK and possess an in-depth and up-to-date working knowledge of the tax system intricacies of both countries.

We offer a range of accounting services for North American companies operating in the UK.

Tax planning

VAT expertise
and compliance

Payroll registration and compliance

Corporation tax and advice and return filing

Outsourced accounting services

Tax planning

VAT expertise
and compliance

Payroll registration and compliance

Corporation tax and advice and return filing

Outsourced accounting services

If you would prefer to set up a company in Ireland, please click here

Doing Business in the UK

To help familiarise you with the UK business environment, we’ve pulled together some key insights into the types of taxes that have to be paid and the business culture.

Payroll taxes (PAYE)

The UK’s payroll scheme is called PAYE (Pay As You Earn), and every company operating in the country has to register for it if they have more than one employee. PAYE is a way of collecting income tax and National Insurance contributions at source.

If none of your employees are paid £120 or more a week, or get expenses and benefits you do not need to register. However, you must still keep payroll records.

To register for PAYE, you first have to register your company with Companies House, the UK’s registrar of companies. Once this has been done, you can apply for your PAYE number by registering as an employer with the HMRC (Her Majesty’s Revenue and Customs). This is the British equivalent of the IRS. If you do not register, you could face fines, penalties and possible legal action from the government.

Once your company has registered as an employer, you can either run the payroll yourself using software or pay a payroll provider to do it for you. Even if you decide to outsource payroll, you will be responsible for compliance with PAYE.

Note that the UK has a statutory national minimum wage that all employers must abide by.
The hourly rate depends on age and whether someone is an apprentice and is set every April.
The current hourly rates are:

  • £8.7225 and over
  • £8.2021 to 24
  • £6.4518 to 20
  • £4.55Under 18
  • £4.15Apprentice
  • £8.7225 and over
  • £8.2021 to 24
  • £6.4518 to 20
  • £4.55Under 18
  • £4.15Apprentice

No Local Taxes

In contrast to the United States, which has a multi-tiered income tax system with federal, state, and local taxes, the UK’s income tax is a nationwide tax. The rates are the same in England, Wales and Northern Ireland.

Since 2017, the Scottish parliament has had the power to set its income tax rates and limits, and they’re slightly different from the rest of the UK.

Medicare

National Health Service

Unlike Medicare, which is concentrated on specific categories of poor, elderly and disabled citizens, the UK’s National Health System (NHS) delivers fast and free preventative and emergency healthcare to all residents regardless of income.

This means no bills and no mountains of paperwork when you go to the hospital or see your local doctor. The publicly funded healthcare service was created in 1948 to provide universal healthcare coverage for the country’s residents. It is seen as the crown jewel of the British welfare system.

The high quality of NHS care is known internationally

Some people opt for private healthcare for additional comfort. For example, to enjoy hotel-like facilities such as having a private room instead of being on a ward and experiencing a greater food choice. According to estimates, more than 10% of the UK population has voluntary private health insurance.

Employer and employee contributions fund the NHS. An employee’s contribution (employee’s National Insurance) is deducted from their gross earnings by their employer, with no action required by the individual. How much they pay depends on the amount they earn and their National Insurance category letter (A, B, C, H, J, M and Z).

The amounts employers pay towards employees’ National Insurance for the 2020 to 2021 tax year are as follows

Scroll left

£/month A B C H J M Z
520-732 0% 0% 0% 0% 0% 0% 0%
732 to 4,167 13.8% 13.8% 13.8% 13.8% 13.8% 13.8% 13.8%
over 4,167 13.8% 13.8% 13.8% 13.8% 13.8% 13.8% 13.8%

Employers also make National Insurance contributions on expenses, benefits and some lump-sum payments such as redundancy.

Value Added Tax (VAT)

Unlike the United States, the United Kingdom has a VAT system, which means that all registered businesses have to charge VAT on the full sale price of the goods and services they provide.

VAT is levied at each stage of production and is one of the most significant sources of revenue for the government. The standard rate of this general tax is 20%, although some goods and services are charged at reduced or zero rates.

VAT is charged on things like:

  • Business goods and services
  • Commission
  • Selling business assets
  • Hiring or loaning goods to someone

In the UK, VAT is included in an item’s price tag (gross pricing), which is different from US sales taxes that are typically added at the checkout (net pricing).

Businesses can only charge VAT if they are registered to do so, which is a requirement if taxable turnover is or expected to be higher than £85,000 a year. You must register your business for VAT with the HMRC. Once registration is complete, you will receive a VAT registration certificate that confirms your VAT number and when to submit your first VAT return and payment.

Usually, businesses have to file a VAT return every three months. It includes information such as total sales and purchases, the amount of VAT owed, and the amount that can be reclaimed. Ordinarily VAT-registered businesses can reclaim the VAT they’ve paid on business purchases and expenses.

VAT returns must be submitted even if there is no VAT to pay or reclaim.

Failure to submit a VAT return by the deadline or not making a full VAT payment by the due date can result in the levy of an additional charge.

Corporation Tax

Corporation tax rates are lower in the UK than they are in the US.

Currently, the corporation tax rate for company profits in the UK is 19%, while in the US, it is 21%.

Corporation tax needs to be paid within nine months and one day after the company’s accounting year-end.

Tax Incentives

Various tax incentives and grants are available to foreign businesses wishing to establish operations in the UK.

Their availability is dependent on several factors such as location, the number and quality of jobs and the need for assistance.

Differences Between Doing Business in the UK and the US

One of the most significant differences relates to US and UK employment law. In the United States, employee relationships are presumed to be at-will, meaning an employer can terminate a worker’s employment without notice, for any reason. However, this does not exist in the UK.

In fact, it is very difficult to fire someone in the UK. Employment law is much more formal and structured with written contracts. Employees have a lot of protection and cannot be dismissed for any reason or without notice.

While companies can fire someone immediately for gross misconduct, this can rarely be done for other situations. UK businesses are advised to have a disciplinary procedure that should be followed before deciding to dismiss.

This should include taking notes and gathering evidence. If you do fire someone and you don’t follow the correct dismissal procedures or terminate their employment for inappropriate reasons, you could be taken to an employment tribunal. This may result in you having to pay compensation.

In the UK, there must be a valid reason for dismissing a staff member. Valid reasons include:

  • Redundancy
  • Capability or conduct
  • Something that prevents a person from doing their job. For example, a lorry driver losing their licence for drunk driving.

Pensions

Employers in the US do not have to contribute to personal pension plans. However, it’s a little different in Britain.

Under the Pensions Act 2008, employers in the UK have to enrol eligible staff into a pension scheme and contribute towards it (although employees can decide to opt out). This auto-enrolment scheme was phased in from 2012. Employers are expected to pay a fixed amount for each employee or a percentage of earnings.

The current minimum employer contribution is set at 3%. The minimum employee contribution is 5% of their salary.

The law requires that when companies deduct pension contributions from staff pay, these must be paid into the staff pension scheme no later than the 22nd of the following month (or 19th if payment is by cheque). Late payments could result in a fine from the Pensions Regulator.

Vacations

Statutory annual leave entitlement in the UK for a person who works a five-day week is at least 28 days’ paid leave. In the US, it’s about half that.

Benefits

UK workers are typically entitled to more benefits than their counterparts in the US. Among them are paid maternity leave, paid paternity leave and sick pay.

Employee Stock Options

Issuing employee stock options known as employee share schemes in the UK can be an effective way to reward and retain staff.

They are popular with many businesses, including tech companies and can offer tax advantages for both employees and employers.

While there are some similarities, the UK’s handling of employee share schemes does not always imitate that of the US.

In the UK, four employee share schemes are approved by the HMRC. They are:

  • Enterprise Management Incentives (EMIs)
  • Company Share Option Plans (CSOPs)
  • Share Incentive Plans (SIPs)
  • Save As You Earn (SAYE)

Note that it is possible to issue options to acquire US stock to a company’s employees in the UK.

Upon the sale of the share, employees may have to pay capital gains tax. This is calculated on any subsequent increase in share value from the date of exercise until the sale.

Under unapproved employee share schemes, the employee is subject to income tax via PAYE and National Insurance contributions. Meanwhile, the employer may also need to make a NI contribution.

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