Key considerations when setting up a UK entity

10 September 2020

Renowned for innovation and powered by a relentless entrepreneurial spirit, the UK business scene has long benefited from the contribution of immigrants.

In fact, in 2019, research found that 49% of the UK’s fastest growing businesses had at least one foreign born founder.

It’s not hard to see why – between world-class universities, top talent networks and a vibrant start-up scene that continues to attract record levels of venture capital investment, the UK is a destination of choice for entrepreneurs seeking a seedbed to grow their business.

If you are planning to launch a start-up business in the UK, an immigration application should by no means stand in your way of success. However, there will be a number of considerations you will need to make before registering the company and developing your ideas.

We regularly assist entrepreneurs from around the world to establish their business in the UK, providing practical advice to ensure operations get off to a good start.  From visas, business structures and taxation to employment law, we’ve put together the following guide to setting up a UK entity to help keep things simple.

In this guide:

  1. How to start a business in the UK
  2. Business visas in the UK
  3. Starting a business in the UK – Types of Business
  4. Employing foreign staff as a UK business
  5. Business law advice for entrepreneurs

How to start a business in the UK

Thinking of setting up your company in the UK? We’ve outlined the key steps involved in the process below.

1. Write a business plan

First and foremost, you will need a detailed business plan based on market research that clarifies your ideas and sets out how they are achievable. The more specific you can be, the better, so make sure you have laid out exactly who you will be selling to and how many other companies are selling similar products.

Potential investors should be able to separate your product or service from competitors at a quick glance of your plan. They should also see evidence of how you will make a profit through a well-prepared budget forecast.

2. Apply for an Innovator Visa

With new immigration rules to contend with, it’s essential to start your visa application early and choose the right route. While the Tier 1 Entrepreneur Visa is no longer available, you can apply for an Innovator Visa or Start-Up Visa. Read on for the key differences.

3. Decide on your business legal structure

When setting up your business in the UK, you will have the choice of several business structures including sole trader, partnership, limited company and more. Each will come with their own unique advantages; the choice you make will depend on your intentions and objectives in the short, medium and longer-term. If you set up as a limited company, there will be additional duties required of you as part of the process. See the below section on UK business types for details.

4. Choose a business name and address

If you’re setting up as a sole trader, you can use your own name or trade under a business name of your choice. Only if you are setting up as a limited company will you need to register your business’ name. Whichever structure you choose, you will need a UK address for tax purposes and joining the company register in the UK.

5. Register with HM Revenue and Customs

You will need to register your UK business with HMRC for tax purposes. Limited Companies need to register with Companies House at the cost of £12 (online) or £40 (post).

6. Consult with a lawyer on additional rules you may need to follow

Depending on the nature of your company, there may be additional considerations and rules to comply with before you can launch your start-up. This could include licenses or permits, insurance or matters regarding the use of personal data. Speak to a business lawyer to ensure all areas have been covered and completed.

From here, you are free to focus on developing your ideas and getting your business up and running.

Business visas in the UK

With the change to UK immigration laws on the horizon, foreign nationals intending to set up a business in the UK should familiarise themselves with the options available and start the application process early to allow time for potential hurdles.

An immigration lawyer will be an essential asset during this time as they will be able to answer any questions you may have throughout the process.

The two new routes for entrepreneurs setting up a business in the UK are:

Start Up visa

Eligibility for a Start-Up visa is based on certain criteria – namely, you must be from outside the European Economic Area (EEA) and Switzerland. If you are planning on applying for this visa, you must also have:

  • a new idea (in other words, you cannot join a business that is already trading
  • an idea that differs from anything else currently on the market
  • an idea that is viable as a vehicle for profit

Further to this, you will need to be endorsed by an authorised UK body, such as a higher education organisation, an organisation with a history of supporting UK entrepreneurs (e.g. a start-up accelerator). You should only approach endorsed organisations that are suitable for your type of business – view the endorsing bodies list here.

An entrepreneur setting up in the UK via a Start-Up visa will be able to stay in the UK for 2 years. After this time, an extension won’t be possible, but you may be able to switch to a Tier 1 Entrepreneur visa once already in the UK or the Innovator visa.

It’s worth noting that your visa may be cut short if your endorsement is withdrawn. If this happens, you must re-apply with a new endorsement before the visa expires.

Innovator visa

The Innovator visa is designed for entrepreneurs who wish to come to the UK and establish a business. In order to set up and launch your UK entity, you will need to be endorsed by an approved body. The criteria for the Innovator visa is similar to the Start-Up visa in that you must have a new, innovative idea that us viable with potential for growth. The application should be made 3 months before travelling – a decision can be expected within 3 weeks.

You will need at least £50,000 in investment funds to secure the visa, unless

  • your business is already established and has been endorsed for an earlier visa, or
  • you’ve changed your business and already agreed this with your endorsing body

Both visa types listed above will come with a fee payable upon application. The fee will usually depend on your circumstances and where you are applying from.

With the Innovator visa, you will be legally allowed to stay in the UK for 3 years, and there is no limit to the amount of times you can extend the visa. Once you have been living and working in the UK for 3 years, you will also have access to an application for indefinite leave to remain.

Starting a business in the UK: types of business

Setting up as a UK entity will require you to choose a type of business structure that is the most appropriate for you, taking into account your objectives and current circumstances. The types of business structure available are as follows:

Sole trader

Sole trader is the structure used by the self-employed in the UK as well as those running a business on their own. According to data from the Government in 2019, almost 60% of British businesses were sole traders, that’s about 3.5m businesses out of a total of 5.8m.

Choosing to operate as a sole trader effectively means you are the business, as the legal identity is not separate to the owner. If this is the route you choose, you will need to register for self-assessment to pay sole trader tax.

General partnership

A general partnership splits responsibility, profits, ownership and tax between two or more individuals (or companies). Each partner is jointly liable for any debts accrued by the business.  This is a common route for entrepreneurs establishing small businesses in the UK.

Limited partnership

A Limited partnership is similar to a general partnership – the key difference is that there is at least one ‘general’ partner who runs the business in the UK who is personally liable for all business debts, and one ‘limited’ partner, who’s responsibility and liability is limited to the amount they contribute financially to the business.

Limited liability partnership (LLP)

Typically used by service companies, a limited liability partnership is based on an agreement that is registered with Companies House. The agreement limits the liability of all partners for debts that the UK business is unable to pay.

Private Limited Company (Ltd)

A private Limited Company is a business entity that is treated by the law as separate from its owners. To set up a limited company, you must incorporate the company through registration with Companies House. Directors will need to be appointed and at least one shareholder. Shares in the company cannot be traded publicly.

Public Limited Company (PLC)

A PLC differs from limited company in that their shares can be traded publicly. It’s worth keeping in mind that there needs to be a minimum share capital of £50,000 with at least 25% paid prior to start-up.

Unlimited company

Less commonly used by entrepreneurs is the unlimited company structure, whereby shareholders have joint unlimited liability for business debts. This means they can be covered with personal assets in the event of the business assets not being able to pay debts.

Social enterprise

Social enterprises are the vehicle used by individuals looking to start up charitable organisations. Unlike the above structures, this type of business will invest profits made to social and community causes rather than to distribute among shareholders.

Employing foreign staff when you’re starting a business UK

As your business grows, you will inevitably need the support of extra personnel to help you achieve your objectives. If you are starting up a UK business and you intend to employ staff, there are a number of things you will need to do before you can start recruiting. This includes:

  • Registering as an employer with HMRC
  • Obtaining employers liability insurance
  • Creating necessary documentation e.g. employment contracts, company handbook
  • Setting up a workplace pension

You will be able to employ foreign staff to your business, but you must conduct right to work checks to ensure they have the legal right to work for your UK company. Read our guide to immigration law for employers for more information on compliance in this area.

Business lawyers for UK entrepreneurs

The initial process of setting up in the UK alone will benefit from the support of specialist immigration, corporate and commercial lawyers equipped with the expertise to help you get your company up and running with little fuss.

Beyond this, ongoing support from a legal team can make all the difference – from establishing a set of procedures to limit risk to drafting contracts that restrict your liability and protect your interests.

At 360 Business Law, we proudly help to remove hurdles for entrepreneurs eager to launch their business in the UK. Not only can we assist in the early stages of company formation and visa applications, we can support your business in the long-term by providing high quality legal advice and representation should you require it.

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