Legal and tax implications of expanding internationally to the UK from the US

Margaret Nguyen4 min
Legal and tax implications of expanding internationally to the UK from the US
In this article
  • Legal and tax implications of entering the UK
  • Other factors to consider

The UK packs a lot of people into a small space. With a total area of almost 94,000 square miles, it boasts a population of 67 million. That’s nearly twice the population of Canada in considerably less space.

With a head count like that, expanding into the UK poses an excellent opportunity to expose your brand to loads of potential new customers without overextending your efforts, regardless of whether you operate brick-and-mortar shops or an eCommerce company.

But a country with a long history usually means a country with strict laws and protectionism. You’ll face some hurdles making the jump over the Atlantic, but if you see an opportunity you want to pursue, we’ve got the info you need to get there.

As with expanding to any country, you have to get two key things right when expanding to the UK. First, it’ll want your business to be properly registered. Second, it’ll want to tax you on any business activity. 

If you get these things right, you’ll avoid the harsh penalties and fines of not following the country’s rules.

[Related: How to set up business operations in the UK]

Choosing a legal structure

Just like when you first set up your business, you’ll need to choose a legal structure that will determine how you operate. The options are not much different from those in the US. You can choose from the following:

  • Limited company

  • Branch office

  • Limited liability partnership (LLP)

  • Sole trader

  • Partnership

The simplest approach is setting up a branch office. Setting up a branch office means your American base of operations is the main entity — in fact, a branch office isn’t a separate legal entity. From an administrative perspective, this means an easier setup because you can still run everything from where you’ve always run it. 

This is especially enticing for mostly online businesses.

However, setting up a branch office comes with some notable drawbacks. In particular, any debts or collateral will carry over to your US entity. If you want to keep your assets protected from any foreign activity you conduct, it’s best to explore other options.

Registering your business

Any business must be registered with the Registrar of Companies at Companies House. In some cases, you can even register online. 

Once this is done, your information will be passed on to HM Revenue & Customs (HMRC). You must complete registration with HMRC to pay the required corporate taxes and remain compliant.

With commerce becoming increasingly international, registering a business abroad is easier than ever before because you can use a variety of registration services. These companies will ensure not a single document goes unfiled, which gets you started on the right foot. They can also provide advice on the best legal structure for your specific use case.

Understanding UK taxation

UK subsidiaries must file an annual Company Tax Return (Form CT600). You must pay taxes within nine months of when your accounting year ends, but you must file taxes within 12 months of the end of the accounting year. This applies to only all UK profits.

Then there’s Value Added Tax (VAT). This is the tax you must charge, collect, and remit on the sale of any goods or services once your turnover exceeds £85,000. Unlike an annual filing and return, you typically report this quarterly.

When calculating VAT, remember to offset the amount by the input VAT on the purchase of goods and services by your business. For example, if you produce ceramic mugs and paid VAT on the ceramic material, you can offset the VAT you owe by the amount you paid for said material. In fact, if your input VAT outweighs your output VAT, you can reclaim the difference from HMRC.

[Related: How to receive payments in the UK]

Other factors to consider

Get familiar with new regulations

Although built on many of the same principles, even minor differences between two countries’ regulations can significantly affect how you operate. In particular, it’s good practice to familiarize yourself with regulations regarding employment, pollution control and monitoring, waste disposal, and industrial emissions. Any violations in these areas not only can prompt fines and penalties but also can influence how your new customers perceive your brand. 

Local consumers are unlikely to be receptive to a foreign company that violates employment law or harms the environment.

Paying local suppliers and contractors

Once you start operating in the UK, it will be more cost-effective to start working with local suppliers and contractors. But before you do, it’s important to know how you’ll be charged to make these payments.

Many financial institutions will cut into your bottom line in two ways. First, they charge you a fee on international transactions, which can be either a flat rate or a percentage of the transaction. Then, they typically offer you subprime conversion rates.

Getting a local bank account to curb these costs is a good idea. However, if you want to keep all your finances in any currency in an easy-to-manage, single account, consider Airwallex. Airwallex makes it simple to manage multiple currencies and the transactions that take place across them so you can keep track of everything in one space.

Running international payroll

If it’s time to think about adding a full-time employee in the UK, you’ll need to get familiar with the payroll taxes known as PAYE and other deductions for National Insurance. 

To save yourself the time and hassle of learning these regulations, consider using an international payroll provider like Deel. With expertise in connecting businesses with international employees — and remaining compliant — it’ll help you run payroll across borders without a hitch.

Holding foreign currency

Keeping some of the local currency can benefit your business beyond simple finances. When you hold at least some of their currency, locals will be more likely to work with you, and financial institutions will be more willing to provide credit.

Another major benefit is significantly improved recordkeeping. By keeping your transactions for your UK operations separate from your US operations, you can easily identify which part of your business a transaction applies to. When it’s time to clean up your books to prepare for tax filing, you won’t have to dig to know which base of operations a transaction was for.

Once you’re ready to expand into a new area, an Airwallex account houses everything you need for international commerce. We’re an American company that knows what it takes to help you run your operations abroad. By offering you a full financial suite focused on international success, you can keep your funds separate and reduce the transaction costs that come with sending money across borders.

Sign up to get started today, or contact our sales team for more information on how Airwallex can be a great solution for you.

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Margaret Nguyen

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