Company formation is a process by which a business registers as a UK limited company. A company is a legal entity with a separate identity from owners or Directors. The vast majority of companies are limited liability companies where the liability of the members is limited by shares.
Companies House
A business cannot operate as a limited company until it has been incorporated at Companies House under the Companies Act 2006. The registration process is online and there is no need for all shareholders or Directors to visit the UK for this purpose or to obtain Notarised documents.
At Least 1 Director
A minimum of one Director is required, and that person can be a citizen of any country. There is no requirement for a company to have a UK citizen or resident as a Director, and non-UK resident Directors are not required to register for a local tax ID or pay any personal taxes.
Share Capital
There is no minimum share capital, and it is not necessary to pay the issued share capital before company formation.
Accounts
Establishing your business as a company means the Directors are required to file certain documents every year such as annual accounts and a confirmation statement. They must also inform Companies House about any changes, such as the appointment or resignation of directors or a change to the company’s registered office.
What's the Difference between a Limited Company and a Branch?
We are often asked about the differences between operating in the UK as a branch or through a separate daughter company where all the sales are still made from the Home country.
Let us consider these differences…
Branch
A Branch is sometimes called a Representative office or a Place of Business, and these terms are interchangeable.
A Branch is an extension of an overseas company and although it is not a separate legal entity in the UK, it must be registered with Companies House if the foreign business has some degree of physical presence in the UK.
The process of registration for a Branch must be done on paper rather than electronically. A copy of the Constitution of an overseas company, officially translated into English, must be submitted to Companies House, together with signatures of all directors on a Branch registration form.
The accounts for an overseas company, in English and with live signatures of the Directors and auditors, must be filed in the UK at Companies House with the registration application form, and after that for each accounting period ending after registration. The accounts for a Branch alone are not filed on the public record, but must be prepared for the tax authorities (HMRC).
A Branch also needs an official address as well as a Permanent Representative in the UK.
A Branch must prepare accounts for its UK operations and pay UK tax on the profits it makes in the UK. The taxable profits will include the profits on the sales invoiced by the overseas company to UK customers because a Branch and the overseas company are the same legal entity. Relief against company tax will usually be given to the Home company for Company tax paid in the UK.
A Branch can register for payroll taxes and employ UK-based staff who become employees and are taxed accordingly.
A branch will have to register for VAT in the UK if the total sales (of the overseas company as it is the same legal entity) are more than GBP 85,000 in a 12 month period. The advantage of this is that a branch reclaims VAT on the costs in the UK, and the disadvantage is that it must charge UK VAT to its UK customers and complete the VAT declarations quarterly.
Limited Company
A Limited Company or Daughter Company or a subsidiary, is a separate legal entity from the mother company, therefore its activities are separated from those of the mother, so for example, the sales by the mother company to UK customers are not subject to company tax in the UK. The liability of the parent company is limited to the amount of the share capital issued.
The registration process with Companies House is online and there is no need for all directors or representatives of the mother company to visit the UK for this purpose or to obtain notarised documents.
The directors of a Daughter Company can be of any nationality and live anywhere. The is no need for a UK national or resident director.
A Limited Company or Daughter Company must have a registered office address in the UK and can appoint an official representative, called a Company Secretary.
A Limited Company or Daughter Company must file an annual financial statement and annual confirmation statement with Companies House and corporation tax return with the UK tax authorities (HMRC).
A Limited Company or Daughter Company can register for payroll taxes and employ the UK based staff, who become employees, and are taxed accordingly.
A Limited Company or Daughter Company must register for VAT once its UK sales exceed GBP 85,000 within a 12 month period. The UK company can reclaim the VAT it has paid on its costs. VAT declarations must be submitted every three months.
