It is hard to talk about 2020 without mentioning coronavirus and the impact it has had on the UK economy, but as we head towards the end of the year, if businesses did not have enough to deal with, Brexit is slowly making its way back into the news headlines as the deadline of 1 January 2021 comes ever closer. Whilst the small print is being fine-tuned, one thing for certain is that business between the UK and EU will change post 1 January and businesses will need to prepare for changes.
For many overseas businesses, the option to establish a UK presence remains attractive to ensure it can continue to service its customer base and benefit from opportunities in the UK post-Brexit. There are two ways for an overseas business to set up in the UK; they can choose to either establish a UK branch of a limited company or register a separate subsidiary company.
Careful consideration is needed when considering whether to incorporate as a UK branch or a subsidiary limited company, as each option requires complying with different rules and regulations and, depending on the board’s risk appetite, different approaches will be preferred. For example, when opening a branch, the parent company bears any liability or legal action taken against the branch, whereas opening a subsidiary company means registering a legal entity separate to that of the parent, which in turn would mitigate risk to the parent company. A branch company may also be an attractive option for those companies wanting to test the UK market as they are relatively easy to open and close down if the venture does not go to plan; whereas, a limited company is more complex and expensive to close down.
Other practical issues to consider are the ongoing filing requirements of both options and what works best for your business. Both a branch and a subsidiary company will have to file end of year documents at Companies House, but the information publicly available on Companies House is different and may influence your decision A branch is required to file a form OS AA01 which is accompanied by its parent year-end financial statements under local GAAP, whereas a subsidiary will need to prepare a set of separate financial statements, either under UK GAAP or IFRS. Whilst having a reduced burden of preparing a set of separate financial statements and the applicable tax filings, having parent company financial data on Companies House may be sensitive, especially if this information is not normally available in its country of incorporation.
Whichever the choice, either route would still require registering with HMRC for taxes such as VAT and PAYE/NIC where applicable. For financing, setting up a bank account is not required for a branch but depending on the activity in the UK it might be preferable to do so.
For those companies wanting to set up a branch, from practical experience, the form OS IN01 required to incorporate a branch at Companies House is considered complex and takes more time to complete then setting up a subsidiary company, so for those businesses looking to have a UK presence prior to Brexit we would recommend beginning to action this sooner rather than later.
If you are looking to open a UK presence, we would be happy to assist and talk to you about how this can be structured in the most efficient way. Please contact Dan Town at firstname.lastname@example.org or 01242 680000 for more information.