Setting up business in the UK - what is required? (NASSCOM Friday’s 2.0, 44th session)

Posted by Kapil Nakra

at February 8, 2009

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Kapil Nakra, Co. Founder, OMLogic, blogged the 44th session of NASSCOM Friday’s 2.0 at the NASSCOM EMERGE Blog. OMLogic is the Blogging partner for NASSCOM Friday’s 2.0.

Tim Stovold, Kingston Smith LLP the presenter at the session, is a partner in the Tax and Legal Consultancy department of Kingston Smith LLP. He specializes in a wide range of tax planning including domestic and international corporation tax issues, employment tax including incentives and share options and income and capital gains tax planning for owner/managers of businesses during the life of the business and on exit.

The room was full of participants, and its interesting to see in these times of recession people who are looking at setting up businesses in the UK, re-inforcing India shining!

Thinking of setting up a business in UK!

How will you Identify the best-fit business structure for your company?

This session provides information related to registration, Corporation Tax, VAT, Employment Tax, Transfer Pricing and other related issues you need to deal with setting up a business entity in the UK.

Avinash Raghava, Regional Manager, North, NASSCOM, introduced everyone to NASSCOM Emerge initiative and welcomed Chandru Iyer from Kingston Smith, Paul Grey from UK Trade & Investment, Tim from Kingston Smith.

Chandru Iyer started the session by introducing the presenters and invited Paul Grey to start the session.

Setting up Business in UK - Nasscom Friday 2.0

View more presentations from Omshare Community. (tags: nasscom friday)

Paul started with introducing UK Trade & Investment(UKTI). UKTI is setup in more than 200 countries world-wide and as per Paul UKTI is probably the most successful Trade and Investment organization in the world!

Paul went on to highlight the key advantages of setting up a business in UK.

There are already significant number of Indian Organizations present in UK. There are in total 600 Indian companies present there and out of which 300-400 are IT companies. So for the new Indian companies planning to venture there, UK is just like a second home.

Even though UK is facing the same economic situation, the world across is facing but UK strong decision making capabilities helps in dealing powerfully with the overall scenario and thereby helps in taking care of the interest of the people.

UK have received a vast amount of FDI (Foreign direct investment). In fact, UK is just after the US. which equals to roughly 1.3 Trillion dollars. As a matter of fact, this amount is same as the GDP of India.

Moreover, UK is the largest ICT market across the Europe. That means that UK is a deeply interested in IT Outsourcing services. Good Opportunity IT services Guys!! Go grab it!

Setting up on organization and dealing with Govt. is significantly more easy that anywhere else in Europe. There are lots of organizations like Kingston Smith, which are there to help setup organization there.

In fact as per E&Y, maximum number of Organization headquarters are there in UK then any other country. There are very few other countries, where organizations are setting up there headquarters.

In terms of recruiting qualified staff, London is ranked Top among all the cities in Europe. It is also getting cheaper every day.

At last, UK is a multi-cultural place. A good place to stay for outsiders.

Combining all features together makes UK a very attractive destination to setup your business.

What can UKTI do to help?

Get in touch with right set of people ( Industry Leaders, Charted Accountant, etc.)

With that Paul completed his presentation and handed over to Tim. Tim talked about “Carrying on business in the UK and related tax, accounting and Company Law matters”

Tim started with introducing Kingston Smith. Kingston is among the ToP 20 UK Accountancy Firm. Other than Accountancy they do lots of services including HR consulting etc. Moreover, if they do not have the right skills to deal to any problem, they definitely help in recommending the right contact. So guys what to setup stuff in UK, just contact them!

Tim takes on a critical topic which all the companies trying to setup presence in UK deals with and that is: “Branch” Vs “Subsidiary”

Definition: Branch

No withholding tax on profits paid from UK
20% withholding tax on interest– can be reduced under certain tax treaties
Interest and royalties to “parent” company not tax deductible

Definition: Subsidiary

Separate legal entity
Liability ring fenced in the UK within subsidiary
Subject to UK Corporation Tax on Worldwide Income

Regarding Taxation, setting up a branch is more beneficial than setting up subsidiary. The details are available in the presentation. In fact if you set up a Subsidiary in UK you end up paying ~50% for bringing profits back to India. Even statutory requirement is virtually “Zero” in setting up a Branch.

Moreover, it is fairly easy to convert Branch to Subsidiary and otherwise. So you can change you identify status any time later.

One advantage of setting up a subsidiary is that “subsidiary” is considered as a “strong” presence, while “Branch” is considered as a “Weak” Presence. But in most cases it is just a perception. Fro example, as far as work permit is concern - Branch is equally qualified to invite people into UK.

Another disadvantage of Branch is unlike registering subsidiary, registering a branch is a time consuming process. Moreover, in case of Branch, company need to have at least one UK based representative while in case of Subsidiary, you just need to have one director (not necessarily UK based).

Taxation (Interesting Example):

In a general case if a employee has a salary of £ 40K. The take home salary after social security charges would be £ 29.4K and the company will be shelling out £ 40.4K

For individuals on secondment from India to the UK, there is no liability to Social Security for the first 52 weeks. Moreover, If employee spends some time working outside of the UK, the salary corresponding to the proportion of work days spent outside of the UK can be excluded provided that it is not remitted to the UK

Therefore, if an employee earning £40,000 but spending 2 days a week (i.e. 40%) working in various European countries. The employee with take more £ 35.2 K! and the employer will have to pay only £ 40K!.

He also mentioned about Tax Deductible Living Expenses and Non Tax Deductible Expenses. The details of these categories is available in the presentation.

So as per above example, if an employee earning £40,000 is seconded to set up a UK office which is expected to take 18 months. Living in London, he spends around £1,800 per month on deductible expense and He also spends 2 days a week traveling to the European offices. He takes home 39,520 out of 40,000 salary. This represents a £10,120 tax saving for the employee and a £4,400 saving for the employer.

The session ended with an interactive Questions and Answer session. In case anybody has any questions or concerns, just write it in the comment section and Kingston Smith guys will be happy to reply back appropriately.