Key decisions when setting up in the UK: Structure options

Expanding into the UK can be an exciting step for growing international businesses. One of the first decisions you’ll need to make is how your UK operations should be structured. For most overseas organisations, the choice comes down to either operating through a UK branch or establishing a UK limited company. The right option will depend on your future growth plans.

The key difference between these structures is that a UK limited company is a separate legal entity from its overseas parent, limiting liability within the UK corporate structure. In contrast, a branch is merely an extension of the overseas parent company. As a result, contracts entered into by the UK branch are contracts of the parent company, with any associated liabilities remaining with the parent.

Annual Accounts and Audit

A branch generally has less onerous compliance requirements, as it already sits within the parent company financial statements. However, a branch P&L will be needed, to file a UK Corporation Tax return. While a UK Company must prepare its own annual accounts and file them with Companies House within nine months of its year end.

In addition, a further compliance cost depending on the size of the worldwide group, is the UK company may fall within the UK audit regime regardless of its own size.

Companies House Compliance

For a branch it will be necessary to register with Companies House, as a UK permanent establishment. With the requirement to file a set of overseas parent company accounts each year.

Going down the company route, every UK company is incorporated at Companies House. Typically, this takes between 24-48 hours. In the UK, a model set of articles of association can be adopted, which governs the running of the company e.g. appointment of directors and calling of annual general meetings etc. These model articles can be amended.

Other than filing the annual accounts, each year an annual confirmation statement must be filed.

What Taxes Will Be Payable?

Regardless of whether the UK operation is established as a branch or a limited company, UK taxes will generally apply to the activities carried out within the UK.

Corporation Tax

A UK corporation tax return will need to be prepared and submitted in respect of the UK activities. The current main rate of corporation tax is 25%.

The timing of corporation tax payments will depend on the size of the wider group. Payment obligations can range from quarterly instalment payments for larger groups to payment within nine months and one day after the relevant accounting period end for smaller entities.

VAT

A VAT review should be undertaken before entering the UK market, particularly where goods are imported into the UK, sold within the UK, or where e-commerce activities are undertaken.

Whether a VAT registration is required will depend on the nature and level of activity. The current VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period. Registration below this threshold is voluntary, provided the business is carrying out taxable activities.

Employment Taxes

UK employers are required to pay employer National Insurance contributions in addition to employees’ gross salaries. The current rate is 15%.

Together with income tax and employee National Insurance deductions, these amounts must generally be paid to HMRC by the 22nd of the following month where payment is made electronically.

In addition, where benefits are provided to employees outside payroll, such as private medical insurance or company cars, reporting obligations arise following the end of the UK tax year, which runs to 5 April.

For certain benefits, such as staff entertainment or gift vouchers, it may be possible to enter into a PAYE Settlement Agreement (PSA) with HMRC. This allows the employer to settle the tax and National Insurance liabilities on behalf of employees.

How Can Value Be Transferred Back to the Parent Company?

Under a branch structure, profits generated by UK activities are already reflected within the parent company’s accounts, as the branch is not a separate legal entity.

A UK limited company provides greater flexibility regarding both the timing and method of value extraction.

The most straightforward approach is often the payment of dividends to the overseas parent company. The UK generally does not impose withholding tax on dividends paid by UK companies.

Another option is the implementation of an appropriate transfer pricing framework between the UK company and the overseas parent. Depending on the facts and circumstances, this could include:

• Interest charged on intercompany loans.
• Management or service fees for support provided by the parent company.
• Royalties for the use of group intellectual property.

Any such arrangements should be appropriately documented and supported to ensure compliance with UK transfer pricing requirements.

FAQs

What is the difference between a branch and a subsidiary?

A branch is an extension of the overseas company and does not have a separate legal identity. A subsidiary is a separate legal entity owned by the parent business.

What is Companies House?

Companies House is the UK’s registrar of companies and is responsible for maintaining company records and receiving statutory filings.

What is transfer pricing?

Transfer pricing refers to the pricing of transactions between companies within the same group, such as management charges, intercompany loans or royalty arrangements.

Do UK companies pay withholding tax on dividends?

The UK does not impose withholding tax on dividends paid by UK companies to overseas parent companies.

Conclusions

Expanding into the UK presents significant opportunities, but choosing the right structure from the outset can have long-term implications for risk management, tax efficiency and operational flexibility. While a branch may provide a simpler route into the market, a UK limited company can offer greater protection and strategic flexibility as operations grow.

By considering tax and compliance requirements early, businesses can establish a UK presence that supports both immediate objectives and future expansion plans.

If you would like support expanding into the UK, please contact us.