- Posted by Graham Dockrill
- On July 24, 2018
- 0 Comments
- business, Companies Act, intellectual property, legal entities, london, tax, uk
Several months ago I wrote a blog on the ten things you need to know when setting up a business in the United Kingdom. In this article I’ll delve a little deeper and focus on the legal frameworks and commitments required to be successful in the UK.
London is now recognised as the FinTech capital of the world and has been ranked as the number one city in Europe for supporting both start-ups and scale-ups in the European Digital City Index. The Index describes how well different cities across Europe support digital entrepreneurs. Because London is one of the world’s best cities in which to play as well as work, it’s a natural next step for a New Zealand or Australian business to grow and prosper.
When thinking about establishing a presence in the UK it’s worth contemplating the following:
- There are over 500 million consumers in Europe
- London offers direct flights to over 330 destinations
- London has fewer restrictions on doing business than most other major cities in Europe
- London has the most qualified and educated population of all the European cities
- More European HQs are in London than any other city
- There are 230 languages spoken
- Office hours overlap with countries generating over 99% of the world’s GDP
- Entrepreneurial visas are available for those wanting funding
- London has the lowest corporate tax rate in the G7 (20%)
- Tax relief of 30% on investments up to £1m (London based tech companies raised £1.6 billion in the first nine months of this year)
- London is the number one European city for the number of patents registered in healthcare, infomatics, nanotechnology, wireless technology and video games.
Why do I have to set up a UK entity?
There are several reasons why you need to establish an entity. Under the Companies Act, an overseas company setting up in the UK must register a UK establishment. Also, you can only make immigration applications for inter-group transfers (tier 2) if you’ve set up your UK entity as either an establishment or a subsidiary.
How do I decide what kind of legal entity to set up?
The first question to ask is ‘what are my commercial aims?’ Your answer will determine the type of operation that you need to establish and help determine your legal and tax status.
What are the most common legal entities?
For New Zealand and Australian companies there are primarily two relevant options. The first is a UK private limited company, known as a subsidiary. The second is a UK branch of your overseas company, known as a UK establishment. Many customers and suppliers prefer dealing with a UK company, so setting up a subsidiary is often the best option. The legal status of a subsidiary company is that it is a separate legal entity from the parent company even though it will be wholly owned by the parent company. It must also file, on public record, annual accounts. It is liable for UK corporation tax on its profits but it may be able to take advantage of reduced rates of corporation tax depending on the size of profits globally. A trusted partner like Oury Clark can give advice on this.
The status of a UK branch of a parent company is somewhat different. It will be legally the same entity as the parent, meaning that all profits or losses of the UK establishment are incorporated with those of your New Zealand or Australian parent. Secondly, all debts and liabilities of the UK establishment belong to the overseas parent. By law, the entity needs to be registered with Companies House within one month of being established.
How much tax will I pay?
As you would expect, this will be assessed on a case-by-case basis. For example, work undertaken in preparation for the eventual setting up of a taxable presence may be non-taxable. If the UK activities are taxable, UK corporation tax is payable on the UK establishment’s profits, via the submission of an annual tax return. The process is somewhat like what you experience when filing an antipodean company return.
You are required to calculate your own company tax liability and file an annual return of your results over the company accounting period. You should seek specialist advice to make sure your business is structured in the most tax efficient way and that you know how much corporation tax you need to pay and when. Oury Clark’s Huw Williams works with New Zealand and Australian firms and offers impartial and practical advice in regards to taxation.
Intellectual Property (IP) in the UK
Identifying and, where appropriate, registering intellectual property rights is vital in any country to ensure you retain control of your IP rights to generate access to markets, returns on your investment or other commercial benefits. A strong IP strategy and brand identity should also be established.
IP definitions are universal and the UK is no different in its interpretation:
Practical information resulting from experience and testing that can be protected as confidential information to maintain its secrecy. Obviously you cannot register this.
Goodwill in any business is treated as an intangible asset. Goodwill consists in the custom and exclusive right of the buyer to carry on a business under the business name. Goodwill is not strictly an IP right and is not capable of registration.
This is one of the most common forms of protection. It protects the form of expression of ideas and while not capable of registration, is often asserted with the ‘©’ mark.
These are marks used to differentiate your goods and are able to be registered. Application to register a trade mark costs £170–£200 plus £50 for each additional class.
These are contracted to protect the appearance of a purely functional product and are able to be registered. Registration of a single design or the first design in any multiple application costs £60 and £40 is charged for every additional design in any multiple application.
A patent is a monopoly protection of an invention, capable of industrial application. It goes without saying that a patent must be applied for and granted to exist. Application fee for a patent application is £20–£30.
It’s no secret that registering your IP rights is an important investment that generates significant practical, commercial and legal benefits and returns. One must balance the cost and effort of filing registrations with the benefit of the protection received. In order to maximise this benefit, I would always recommend that you engage specialists such as Graham Howard from St Philips Stone.
Graham Dockrill is a seasoned businessman, entrepreneur and founder of Citrus Tree Consultants. Graham specialises in facilitating introductions to key business contacts in London for Australian and New Zealand businesses wanting to expand into this market. His business acumen is sought after globally as he aligns strategy and sales for businesses to foster growth.