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Company formation in UK

The United Kingdom, with its strong international reputation and favorable business conditions, is a top choice for entrepreneurs worldwide when it comes to establishing a company. Many businesspeople from all corners of the globe opt for company formation in UK. It offers numerous opportunities for successful business development and achieving commercial goals. This is one of the many reasons why the UK ranks first among the best countries in the world for business registration, according to Forbes.

It is important to emphasize that when mentioning company formation in UK within this article, we mean England and Northern Ireland.

Company formation in UK

Posted 12 September 2023

Summary

There is no minimum requirement set for a private company limited by shares

For resident companies the worldwide income of the company is subject to taxation

For non-resident companies only the income earned within the territory of the UK is subject to taxation

19%

 

 

 

 

 

 

Relative to other countries

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Diane, partner of GFLO Consultancy

Advantages of starting a business in UK

Company formation in UK is quite popular for various reasons, with the following being of greatest significance:

  1. In England several prospering business sectors, such as construction, trade and various service industries, can provide investors with the investment climate necessary for successful business operations and growth. The UK is a highly developed, thriving nation that plays a significant role in global service exports in the financial, banking, insurance, and IT sectors;
  2. There are no additional residency requirements for participants, therefore the procedure is very simple and convenient for non-residents from any country worldwide. British law doesn’t necessitate the presence of a British citizen within the company’s structure. However, having a resident as part of the company can significantly simplify achieving goals, like opening a bank account. The primary requirement for company formation in UK is to establish a registered office within the country;
  3. Tax rates are relatively low. In England, as in the entire UK, a system of tax incentives, deductions, and discounts is in place, making the country an excellent alternative to tax-free jurisdictions. Furthermore, the UK has signed numerous double taxation avoidance agreements, which is surely also an advantage;
  4. The company registration process is fast and convenient. Conducting business is easy and effortless. England grants a gateway to a developed infrastructure and government support for entrepreneurship.

The following forms of business organizations are present in the country:

  • Private limited company – limited by shares (Ltd.)
    This is a private company in which participants are liable for the company’s obligations only to the extent of their contributions. There are no restrictions on the number of shareholders in a company limited by shares. This form is most common for establishing small and medium-sized enterprises in England;
  • Private limited company – limited by guarantee (Lbg.)
    Companies limited by guarantee have guarantors and a “guaranteed sum” instead of shareholders and shares. Like in many other jurisdictions, this type of company is mostly used by non-profit organizations for charitable purposes. Members of the board, who act as guarantors, are liable for the company’s obligations. In the event of the company’s debts, it is the guarantors who pay the necessary amounts to cover them;
  • Public limited company (Plc.)
    A public company has stricter requirements than a private one. According to the Companies Act 2006, a public company cannot engage in commercial activities without a trading certificate. A substantial minimum share capital of GBP 50,000 (or the equivalent in euros) is required. The shares of a public company are freely traded on the stock exchange. The fact that the company is public must be stated in its Certificate of Incorporation;
  • Limited liability partnership (LLP)
    This type of company is similar to a private limited company (Ltd.), but instead of shareholders it has partners. Another significant difference between a limited liability partnership and other limited liability companies is the role of partners in managing the company. Partners can directly manage the company. In contrast, other limited liability companies need to initiate shareholder meetings, elect a board of directors, and appoint individuals with the authority to manage the company;
  • Private unlimited company
    Shareholders of this type of company are liable for all the company’s obligations, regardless of the amount of their contributions. It’s worth noting that this form of business organization is rarely used in England.

The process of company formation in UK

Registering a company in the United Kingdom is not particularly complicated. Entrepreneurs from all over the world can choose between starting a business from scratch or selecting a ready-made, so-called “shelf company”. In both cases, the process can be initiated once the identification documents for the company founders are collected (feel free to get in touch with our managers to learn more details), as well as the following information is provided:

  • 2-3 proposed names for the future company in order of preference;
  • The structure of the future company (the director, shareholder, and beneficiary);
  • The line of business the company will engage in.

The registration procedure can start immediately after providing all the necessary documents and information. This process, from gathering the necessary registration documents to preparing the final corporate documents for the registered company, involves the following steps:

  1. Checking the company names and selecting an available one. The name checking process takes less than 5 hours;
  2. Preparing forms (UBO Declaration and others), as well as gathering documents for submission to the Companies Registry;
  3. The company registration procedure in the Companies Registry. The registration period is approximately 3-10 working days from the date of submission of all the necessary forms and documents to the Companies Registry;
  4. Preparation of constitutional documents for the registered company and ordering a corporate seal;
  5. Notarization and apostille of documents if necessary. The notarization process takes 1-2 days, while apostille certification takes 2-4 days. It’s worth noting that in England, both notarial certification and solicitor certification are available, depending on the purpose. Our specialists can advise on when solicitor certification is sufficient and when notarial certification is required;
  6. Sending the set of documents and the company seal to the address provided by the founder.

The procedure does not involve complicated stages requiring significant time investment, making company formation in UK comparatively easy.

Tips to keep in mind when conducting business in England

While the United Kingdom, including England, cannot be considered an offshore jurisdiction, it offers attractive conditions for tax and corporate planning. Therefore, it ranks among the top choices for entrepreneurs worldwide to set up and operate businesses. It’s no secret that the UK has long earned a reputation as a reliable country with a developed economy and excellent conditions for investments. The vast majority of British companies follow high standards of conduct in business and corporate management. They all play a productive role in the UK economy, obey the law, and contribute positively to society.

In the summer of 2016, the Companies House in the UK required all British companies to declare whether they had a “person with significant control” over the company’s structure. Currently, this information is requested during the company registration process, based on which a document called the PSC Register is compiled. It contains information about whether there are individuals with control over the organization within the company. For example, if a company’s structure is supposed to have 4 shareholders, a declaration must be provided to the Register stating either which shareholder will have preferential control over the organization or that there are no persons with control in the organization. In the latter case, all decisions will be made based on the equality of shareholders. Recognition of an individual as a PSC is possible in several cases listed in the declaration, one of which is if the person owns more than 25% of the shares or voting rights. More about PSC can be found here.

Additionally, companies in the UK must be maintained annually. One important component of such maintenance is the submission of a Confirmation Statement, which reflects information about the British company and is filed annually. More about the Confirmation Statement can be found here.

Information about the founders and shareholders of English companies is publicly available and is reflected on the Companies Registry website. England adopts a flexible approach to company structures, avoiding overly strict requirements. For example, one person can serve as both the director and shareholder.

In 2018, a new document regarding corporate governance of British companies was adopted. It is named Corporate governance: The Companies (Miscellaneous Reporting) Regulations 2018. The aim of this document is to help UK companies comprehend the potential impact of new corporate governance reporting requirements. The rules were issued on July 17, 2018, and apply to company reporting for reporting periods beginning on or after January 1, 2019.

Taxation in the United Kingdom

According to UK legislation, every British company is subject to taxation. If your company is based in the United Kingdom, it pays tax on profits earned both within and outside the country. However, if your company has non-resident status, it only pays tax on profits earned within the United Kingdom.

• Corporate income tax

The UK government’s website states that corporate income tax applies to the following legal entities:

  1. Limited liability companies;
  2. Any foreign company with a branch or office in the United Kingdom;
  3. Clubs, cooperatives, or other non-corporate associations.

The corporate income tax rate in the UK depends on the income level. For specific types of companies known as “ring fence companies,” which engage in activities related to oil extraction or hold oil rights in the UK or UK continental shelf, the corporate tax rate can be as high as 30% (please contact our specialists for details).

For companies not falling under the ring fence category, the standard corporate income tax rate on profits earned after April 1, 2015, is currently 19%.

• Value added tax (VAT)

The standard Value Added Tax (VAT) rate in the UK is 20%. However, some goods and services have a reduced rate:

  1. Most goods and services – 20% (standard VAT rate in the UK);
  2. Some goods and services, such as child car seats and electricity – 5%;
  3. Goods and services with a zero VAT rate (e.g., children’s clothing, books, newspapers, etc.) – 0%.

Some goods and services are exempt from VAT, including insurance services, postal services, postage stamps, and medical services provided by doctors. When buying or selling VAT-exempt goods and services, they should be reported in the company’s accounts based on general principles.

• Dividend tax

Dividend tax is only applicable if the dividend amount exceeds a certain threshold in a reporting period. For the current period, this threshold is GBP 2,000. The basic rate is 7.5%.

Preparation and submission of reports in England

According to the Companies Act 2006, all legal entities registered in the United Kingdom are required to submit annual returns and financial statements annually. These reports should be kept for 3 years from the date of preparation for private companies and 6 years for public companies.

His Majesty’s Revenue and Customs (HMRC) sends notifications to companies regarding the filing of a Company Tax Return, which every company must maintain and submit annually, even if the company has not made a profit or corporate tax is not due. The deadline for filing the annual Company Tax Return is typically 12 months after the end of the reporting period. In other words, you must file your reports within a year after the end of your company’s reporting year. Nevertheless, it’s recommended not to delay the filing process until the last minute, as there is a shorter deadline for corporate tax payment.

For limited liability companies, there is a requirement not only to file a Company Tax Return with HM Revenue and Customs but also to submit annual accounts to Companies House, which can be done simultaneously.

After submitting the reports, companies liable for corporate income tax have 9 months and 1 day from the end of the reporting period to pay it. The same deadline applies to companies that need to declare that corporate tax is not payable for specific reasons.

It’s worth mentioning a specific procedure for paying tax on profits earned outside of the United Kingdom. To pay tax on such profits, you will need to report the income in a special document called the Self Assessment tax return. If your income consists solely of dividends not exceeding GBP 300, there’s no need to file a Tax return.

Conclusion

England offers favorable conditions for registering and conducting successful business activities. Company formation in UK is appealing because of the low tax rates, the government’s supportive stance on entrepreneurship, comprehensive corporate laws, and various benefits.

GFLO Consultancy experts are pleased to assist and help you with any inquiries, just get in touch or leave a request through the form right below.

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