Setting up a UK subsidiary company can present many benefits to an international organisation.
Operate as a local sales platform providing greater confidence to UK and European clients
Incentivise UK staff with shares in the UK company, but not the rest of the business
Generally allows easier operations in the UK rather than going through a non-UK company
Tax and regulatory benefits
‘Ring fence’ the UK business, helping to protect the overseas parent from liability.
Elemental offers a broad range of services for setting up and managing a UK subsidiary.
Combining the speed of a digital formation service, with expert help each step of the way. We form all types of UK subsidiary companies.
All UK subsidiaries require a registered office. Our comprehensive service includes a central London address and access to a digital mailroom, as standard.
We provide a professional UK director service for subsidiaries and we can also support your existing directors to identify and meet their directors’ duties under UK law.
Our team has worked at the highest level in the City of London and provide a range of relevant subsidiary legal support, including articles of association and shareholders’ agreements.
Accounts preparation book-keeping services provided by qualified accountants. Where you have an existing accountant in your home country, we can work with them to feed the figures into your group reporting.
Our experts offer a full range of subsidiary tax advisory services, including pre-incorporation structuring, reorganisations and refinancing; advising on corporate residency issues and the applicability of double tax treaties.
We can support you with deciding whether to register for VAT and manage the process for you with HMRC.
We can help you to hire your first employees, contracts, payroll, and pensions.
Elemental has an in-house team of company secretaries, lawyers, accountants and tax experts. Below our team outline some of the most common considerations for setting up a UK subsidiary company. The below assumes the subsidiary will be incorporated as a private limited company, the most common form.
A key distinction between a UK subsidiary and UK branch is that a subsidiary is incorporated in the UK, whereas a Branch is simply registered in the UK as an overseas entity. To learn more about the differences between a Branch and a Subsidiary, see our guide.
The articles of association are an important document for the subsidiary and sets out the relationship between the shareholders and the company. For a wholly-owned subsidiary, this can be key as it sets out the ability of the parent company to make changes to the company if they are not satisfied with the directors.
There are three types:
Consideration should also be given to the share structure of the UK subsidiary and the directors of the subsidiary (see Corporation Tax for some of the tax implications of director residency).
The statutory compliance regime for UK corporates is relatively pragmatic when compared to other European regimes. However, as with any country, it is important that the basic statutory requirements are met. Doing so helps protect the company and the directors from fines, civil and even criminal proceedings. Companies House has the power to strike a company off the register for failing to meet its obligations and the owners of the company are determined by the company’s statutory registers, so these are vitally important.
All directors of UK companies are subject to the rules relating to conflicts of interest. These include:
These duties are particularly relevant for directors of a UK subsidiary. As directors, they are required to act in the best interests of the UK company and not just the group as a whole. They are therefore required to manage these conflicts of interest or they could be in breach of their legal obligations.
Conflicts of interest can be handled in various ways, including approval by independent directors and by the shareholders though this depends on the provisions in the articles of association.
For further information, please see our guide on directors’ duties.
Setting up a subsidiary in a new country brings about a host of regulatory and legal requirements, some of which are generic to all businesses in the jurisdiction, and some of which are industry-specific.
In the UK, this can include such matters as compliance with:
These rules are varied and should be considered carefully by the directors of the company. Elemental’s commercial legal services can assist with this by helping to draft policies and contracts as and when needed and by providing guidance and advice.
Every UK company (whether or not it is trading) is required to keep accounting records that are sufficient:
It is a criminal offence for every officer of the company if these requirements are not met. In any event, it is generally good business practice to maintain these records. Sometimes these records are maintained by a central function overseas in which case accounts and returns relating to the UK business must be sent to the UK not less than every six months.
UK trading companies are required to file accounts each year with Companies
House and HM Revenue & Customs, as well as a Corporation Tax return. The
specific requirements for these documents, and whether they need to be audited, depends on the size and revenue of the company.
In particular, the accounting records must contain:
If the company’s business involves dealing in goods, the accounting records must contain:
(Section 386 Companies Act 2006)
Elemental CoSec’s accountancy and tax support can assist with these services, either providing them in their entirety or in conjunction with the business’ central accounts function.
The tax residency of a UK subsidiary will need to be determined before its tax position can be evaluated. If the directors are resident in the UK and make their decisions in the UK, then it is likely that the company will be tax resident in the UK. However, if decisions are, in reality, taken by the overseas parent company, or if the directors run the company from abroad, then the company may be tax resident overseas.
This is a complex area and professional advice should be sought if you are in any doubt. Elemental CoSec offers UK resident directors and tax domiciliation services for UK SPV and holding companies.
Assuming the company is UK tax resident, then it will be taxed in the UK on its worldwide profits. UK corporation tax is charged on tax-adjusted accounting profits.Transfer pricing rules apply to UK resident companies, whereby transactions with related parties (such as the parent company) must be recognised for tax purposes at an arms’ length value (being the amount that a third party would have paid for the goods or services). Though there are certain exemptions for small and medium-sized groups.
If a UK company is paying interest or royalties to a recipient overseas, it may be required to withhold income tax and pay it over to HM Revenue & Customs. This is generally subject to any double tax treaty that may in place between the UK and the place of residence of the recipient.
Elemental CoSec’s accountancy and tax support can assist with these issues.
The UK operates a form of sales tax called VAT and the standard rate is currently 20% (since 4 January 2011) though there are various exceptions and reduced rates.
If the subsidiary is trading in the UK and meets the relevant threshold, the company is required to register for VAT. You can also register voluntarily for VAT, which companies generally choose to do because it can allow them to reclaim VAT on their expenses and because it projects a professional image to their customers or clients.
Currently, the general threshold for VAT registration is sales in the UK of £90,000 in the previous 12 months or an expectation that this will be exceeded in the next 30 days.
Elemental CoSec’s accountancy and tax support can assist with these issues. Please get in touch for more information.
A company should have an employment contract with each of its employees which sets out the main terms of the employment and, in any event, a company must provide employees with a written statement of employment particulars which sets out certain prescribed information.
When a company starts employing individuals, it is required to register as an employer with HM Revenue & Customs and operate a payroll system. This payroll system will manage the salaries of the employees and withhold amounts for National Insurance and Income Tax which should be accounted for to HM Revenue & Customs either on a monthly or quarterly basis.
The UK operates a pension auto-enrolment system which requires UK employers to automatically contribute to a pension scheme on behalf of their employees and to automatically enrol the employees in the scheme (subject to opt-out rights).
Elemental CoSec’s HR support can assist with these issues. Please get in touch for more information.
| Setting up a UK Subsidiary or Branch | How we can help |
|---|---|
| Subsidiary or Branch Formation | |
| Annual Statutory Compliance | |
| Subsidiary Directors and Conflicts of Interest | |
| Legal Requirements | |
| Accounting | |
| Corporation Tax | |
| VAT (Sales Tax) | |
| Hiring Employees | |
| Payroll | |
| Tax Planning |
Alfredo Apéstegui
Manager & Chief Legal Officer, Mesoamerica (working with Ontaria Teachers’ Pension Plan).
Get in touch with us today to understand more about the difference between a UK subsidiary and Branch, or to request a proposal.
