The United Kingdom is one of the best countries that encourages and promotes entrepreneurship. Although the legal scheme of establishing a business in the UK as a foreigner is well organized. But, you may still face some challenges if you don’t fully understand the requirements.
However, establishing a business in the UK as a foreigner may be tedious, especially if you are not a citizen of the European Union. The UK is diverse, with a strong economy and various investment opportunities. Furthermore, buying an already established business in the UK is easier and less risky than starting afresh.
Because there are no limitations on foreign ownership, international investors can buy a business in the UK. However, you must endeavor to comply with the tax laws of the UK. Meanwhile, if you are not a British citizen and intend to own a business and immigrate to the UK, you must apply for a visa.
In this article, we’ll discuss the steps involved in establishing a business in the UK as a foreigner. Also, there are various types of business, taxation, and business visas. Let’s dive in!
Steps To Start a Business in the UK
If you intend to establish a business in the UK as a foreigner, consider the following steps.
1. Check your legal status
European Union citizens who have lived in the UK before January 1, 2021, may qualify for the EU Settlement Scheme. However, before establishing that business in the UK, you must apply for a work visa.
2. Apply for a visa
In case you require a visa, you should apply for one ahead of time. However, the two types of visas available to entrepreneurs are the start-up and the innovator visa.
3. Write your business plan
To successfully establish a business in the UK as a foreigner, you must prepare a business plan. This will further enlighten you and determine if your business ideas will likely flourish and be long-term or not.
4. Choose your business structure
Additionally, before you start your business processing in the UK, you must choose a business structure that best represents your company.
5. Pick a company name and address
If you are starting up as a sole trader, you may use your name as your company name. Furthermore, when registering your foreign business in the UK for tax purposes, you’ll need an address. Some companies must register their names, while others can use a trademark to prevent other businesses from trading under the same name.
However, you must appoint directors and a company secretary, calculate your shares and shareholders, and write your memorandum. As well as articles of organization, open a separate bank account and register for corporation tax if you’re forming a limited business.
6. Register with HM Revenue and customs
For taxation, you must register your U.K. business with HMRC. Companies House requires limited companies to register.
7. Review any additional rules that apply to your line of business
Lastly, additional requirements may be based on the type of business you establish in the UK, such as permits or licenses. Therefore, you should check if there are other rules to observe to avoid any problems in the future.
Types of Business in the UK
There are various types of businesses in the UK, and you must choose the type that best fits your company’s structure. Listed below are the four types of business.
- Sole Trader. 2. Partnership.
- Limited Company.
- Limited Liability Partnership.
However, the legal business structure you decide to pick will impact your business differently. These include taxation, personal liability, and the amount of administrative work you’ll perform. Keep in mind that there’s no “one size fits all” solution to the structure because of the various functions and sizes of the enterprises.
1. Sole Trader
A sole trader owns and operates their own business; in other words, a self-employed individual. However, after deducting and paying your taxes, all the business profit left is yours alone. But when your company incurs any loss, you are individually liable for it.
Furthermore, there are certain guidelines you must follow when you run and name your company. As a sole trader, your duties are as follows.:
- Keep a record of your revenue and expenses.
- File a self-assessment tax return yearly.
- Pay income tax.
- Pay Class 2 and Class 4 national insurance.
VAT: If your yearly turnover is over £85,000, you must register for VAT. You can also register voluntarily if it benefits you, such as selling to other VAT-registered enterprises and wanting to reclaim the V.A.T.
Pick a business name: You may decide to name your company with your name and trade with it or adopt a different name for your company. But if you do not want other businesses to trade under your name, you’ll need to trademark the name.
A partnership is the process whereby two or more people run a company together; in other words, they all own the business. Furthermore, the business structure in partnership has the same responsibility as the sole trader structure. But, except that you have other business partners, which can be one or more.
When establishing a partnership business in the UK, you must prepare a formal agreement. However, this agreement will describe the agreed method of splitting earnings, losses, liabilities, and ownership between you. When setting up a business partnership, you’ll need to:
- Choose a business name.
- Choose a nominated partner.
- Register with HM Revenue and Customs (HMRC)
Meanwhile, the ‘nominated partner’ is in charge of administering the partnership’s tax returns and keeping records of its finances.
3. Limited Companies
A limited business is a private company, and you’ll need to appoint a director to handle the company in addition to any shareholders. The finances of a limited company are independent of your finances as the founder. Furthermore, assuming you’re the only individual hired by the company, you can still register as a limited company by making yourself the director.
The director’s duties and responsibilities include:
- Comply with the company’s standards, as outlined in its articles of incorporation.
- Keep a record of the company’s activities and report any changes.
- File the accounts and company tax returns.
- Pay Corporation Tax.
Besides, you can hire employees, but a director is legally responsible for the company’s records, accounts, and performance. The company will need a personal bank account, which will be subject to corporate tax because it’s a distinct legal establishment. However, corporation tax can be registered when you register your business with Companies House.
But unlike the income tax, all the profits the business makes are taxed, therefore there is no tax-free exemption. On the other hand, the government permits expenses and deductions that might reduce the amount of corporate tax owed.
4. Limited Liability Partnership (LLP)
You can form a limited liability partnership if you want to conduct business with two or more individuals. However, someone or a company termed a “corporate member” can also be a member. As in a ‘regular’ business partnership, each member pays tax on their share of the profits but is not personally liable for any obligations the business cannot pay.
The first steps to take before forming a Limited Liability Partnership include:
- Choose a company name.
- Have a registered address.
- Have at least two members.
- Also, have an agreement that demonstrates the running of the LLP.
- Register the limited liability partnership with Companies House.
Types of Business Visas in the U.K.
In the U.K., you can decide to work as a freelancer, be self-employed, or even establish a
business so long as you can legally work and live in the country. Meanwhile, as you plan to establish your business in the UK, you need to also know the business visas available. Read on!
1. Innovator Visa
If you intend to establish a business in the UK as a foreigner, this visa is for you. However, before you apply for the innovator visa, ensure your business idea is distinctive and endorsed by an approved body. To qualify for this visa type, you must have less than £50,000 in investment funds.
Furthermore, you should be able to provide evidence of the source of the money. Also, you must have adequate personal funds to finance your personal needs. Before applying for, extending, or switching to the innovator visa, you must demonstrate that you’ve had at least £1,275 in your bank account for 28 days.
Additionally, you must prove that you can communicate fluently in English at level B2 of the
Common European Framework of Reference for Languages (CEFR). You will spend £1,020 for this visa, and it’s valid for three years. If you meet all the requirements, you can renew your visa for another three years.
2. Startup Visa
The start-up visa is for individuals endorsed by a UK higher education institution or organizations that usually assist UK entrepreneurs. However, you must demonstrate that your business idea is the latest, distinctive, and has the potential to expand in the future. Application fees for this type of visa start from £362.
If you obtain a start-up visa, you can stay in the UK for two years. Furthermore, the start-up visa cannot be extended but can be switched to another visa while you’re still in the UK.
3. Global Talent Visa
As a leader in the academia or research, arts and culture, or digital technology sectors, the Global Talent Visa is what you will apply for. You will spend roughly £608 for your application. However, you can work in the UK for up to five years with a global talent visa.
Getting a Business Bank Account in the UK
To establish a business in the UK as a foreigner, you must get a separate business bank account. Except in the case of sole traders and partnerships. However, you should open a separate bank account to keep your accounting operations simple.
For taxation, all businesses and entrepreneurs in the UK must register with HMRC and be in charge of filing their tax returns. Meanwhile, profits you earn as a self-employed sole trader and partnerships will be taxed. You must pay for corporation tax registration if you have a limited company or international company with UK branches.
Corporation Tax is levied at a rate of 20% on profits, aside from any deductions or exemptions. Furthermore, if the following conditions apply, you must also register for VAT. Scroll down!
- If your expected VAT taxable turnover exceeds £85,000 for the next 30 days.
- If you had a VAT-taxable turnover of above £85,000 in the last 12 months. Depending on the types of goods you sell or services you render and the location, you may need to register too.
Business Insurance in the UK
Business insurance is required to stay within the law and protect your business.
Types of Business Insurances in the UK
The list below is the most common type of UK business insurance.
- Employers liability insurance: If you have employees working for your company, you are expected to have this insurance. This will cover any claims your employees have, for instance, if they become ill or sustain injuries while working for your company.
- Public liability insurance: If by mistake, you cause injury or death to a third party or damage to their property. Public liability insurance will shield your business from compensation claims and legal fees. Also, public liability insurance will protect you both on-site and off-site. Public liability insurance will pay for the legal fees associated with defending claims and compensations if your company is confirmed to be at fault.
- Professional indemnity insurance: Also known as PI insurance, is a type of company insurance that protects you against financial and reputational harm in case you make a mistake with your customer’s piece of work.
Employing Staff in the UK
To Establish a UK business that will require hiring people, you must register as an employer with HMRC and get employer liability insurance. However, you are free to employ foreign workers in your company if they are legally permitted to work in the UK. When employing staff, you must follow minimum wage laws and pay social security and pension contributions as stated by the law.
Benefits of Establishing a Business in the U.K.
By establishing a company in the UK, foreigners can run a legal business in a safe and thriving economic environment. After Brexit, the country is not subject to EU law. Therefore, the company has to follow the UK regulations. However, this is beneficial because the registration process is equally simple for residents and foreigners and is also conducted online.