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Expats Owning and Operating a Business in the United Kingdom

Submitted: July 2013

If you are an expat wishing to start your own business in the UK, the first step is to ensure you have the legal right to live and work in the UK. Citizens from the European Economic Area (EU plus Iceland, Liechtenstein and Norway) and Switzerland have free access to live and work in the UK and have the same legal rights to own a business in the UK as British citizens. However, certain restrictions are in place for Bulgarian and Romanian nationals, see UKBA – Bulgarian and Romanian Nationals.

For non-EU citizens the process is more wearisome. To be able to set up your own business you will normally have to hold a Tier 1 (Entrepreneur) visa. This requires 95 points according to the points-based visa system. Essentially, you have to prove that you have access to at least GBP200,000, held in a regulated financial institution and disposable in the UK. In exceptional cases access to GBP50,000 is sufficient. You will also need to prove that you have substantial English language skills. For further application criteria, see UKBA – Tier 1 (Entrepreneur). If your application is successful you will have the right to stay in the UK for 3 years and 4 months but you can apply for extension before this period expires. Tier 1 (Entrepreneur) visa holders may also apply for settlement after 3 years, provided they have created at least 10 full-time jobs and generated a minimum of GBP5,000,000 during their stay. 

To read more on the points-based visa system and other immigration matters see IMMIGRATION.

Business Plan

The UK market is very competitive, therefore it is vital to have a good business plan before starting your own business. Make sure to research which businesses already exist in your field and determine your potential customers, partners and competition. Your business plan should set out your business objectives, target market, commercial strategies, potential obstacles and financing projections. For further advice on writing business plans and to view sample business plans, see: Gov.uk - Write a Business Plan.

Legal Structure, Registration and Obligations

Another important step is to decide which legal structure is best suited for your business. The legal structure will determine the nature of your legal, financial and tax obligations. The two most common business types in the UK are ‘Sole Trader’ and ‘Limited Company’.

Sole Trader

The advantage of setting up your business as ‘Sole Trader’ is that you have full ownership and control over the business and that all profits after taxes are yours. At the same time, however, you are personally liable for all the losses your business makes. Further responsibilities include keeping business records, submitting an annual Self-Assessment tax return, paying National Insurance and paying Income Tax on any business profits.

To start a ‘Sole Trader’ business, you must register for Self-Assessment with Her Majesty’s Revenue and Customs (HMRC) at Register for HMRC Taxes. You will then be assigned a Unique Taxpayer Reference (UTR), a ten digit tax reference number. You must also register for Value Added Tax (VAT) if your annual VAT taxable income exceeds GBP79,000. Finally, you should trade under your own name or choose a business name which you can register at the National Business Register.

Limited Company

A ‘Limited Company’ is basically an organisation you set up to run your business. Typically it is led by a director and has members who own shares in the company. Its main advantage is that it is an independent legal subject and its finances are separate from your personal finances.

To start a limited company you will have to register with Companies House. For this you will need an individual company name, a registered address, a company director, at least one shareholder as well as a ‘memorandum of association’ (information on the company’s shares) and ‘articles of association’ (rules about who runs the company). Note that the company name should be different from those included in the Companies House Index and should not contain certain words, see Companies House.

Registration is possible online or by post using form IN01. The online application is cheaper (GBP 15) and faster (48 hours) than the postal application which costs GBP40 and takes 8-10 days to complete. However, a same day registration service is also available if you get your postal application to Companies House by 3pm and pay GBP100. Upon successful registration you will be assigned a Company Unique Taxpayer Reference (UTR). Within 3 months of starting your business you will also have to set up your company for Corporation Tax by contacting HMRC, see HMRC – Corporation Tax. Finally, you might have to register for VAT if you exceed the applicable thresholds.

Other structures

Other legal structures in the UK include business partnerships and unincorporated associations. For further information, see Gov.Uk -Choose a legal structure for a new business. To read more on taxes for expats in the UK, see TAXATION.

Employing staff

If you want to employ someone - including yourself - to work in your business you will have to register as employer at HMRC. Online registration is possible. However, in certain cases expat business owners must register by telephone or in person, see HMRC – How to register as an employer. Once registered, you will be able to deduct Income Tax, National Insurance Contributions (NIC) and other deductions from your employee’s pay through the online system PAYE.

As employer, you will have to ensure that your business complies with UK labour regulations. You should familiarise yourself with different types of contracts, minimum wage requirements, equal opportunities policies, work permits and recruitment options. The UK Government provides extensive information online at Recruiting and Hiring.

Further information

The Government operates the Business Link Hotline for questions related to setting up and operating businesses in the UK. The hotline can be reached Monday to Friday from 9am to 6pm at 0845 600 9006. Information is also available online at:

www.gov.uk/browse/business

 

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