Setting up a new business in the UK: a guide for expats

by | Aug 30, 2023

The UK’s bustling business scene is undeniably alluring. But while starting a business in your home country can be exciting, you’ll face unique challenges if you live abroad.

If you’re an expat planning to set up a business in the UK, this guide can help you understand the essentials.

Choosing your business structure

Selecting the right structure for your business is crucial, as it can affect your legal responsibilities, tax liabilities and how your business operates.

Sole trader

This option is popular for individuals starting out on their own. As a sole trader, you’ll be responsible for all aspects of the business, but the setup is simple. Just register for self-assessment with HMRC and you’re ready to go.

Business partnership

Forming a business partnership means you share responsibility, costs and profits with your partner(s). However, keep in mind that each partner is personally liable for their share of any business debts.

Limited company

If you want a more formal business structure, you could incorporate your business. A limited company is legally distinct from its owners and directors, so you’ll have more protection if your business gets into debt.

Setting up a limited company involves registering with both HMRC and Companies House — and it also comes with more reporting requirements.

Understanding your reporting requirements

As mentioned, your reporting requirements will depend on your chosen business structure.

If you’re self-employed, you’ll need to submit a self-assessment tax return each year and pay income tax on the profits.

For partnerships, each individual needs to file a self-assessment tax return each year, paying income tax on their share of the profits. A designated partner must also submit a partnership tax return.

Limited company directors should also sign up for self-assessment. If you pay yourself a salary or dividends from your UK company, you may be liable for income tax. Of course, you’ll also need to pay corporation tax.

It’s also important to be aware of how the tax system works in your chosen country.

Navigating VAT

If your annual turnover exceeds £85,000, you’ll be required to register for VAT. Recent changes to legislation means you now need to use HMRC-approved cloud accounting software to report and pay your VAT liabilities.

This area of tax can be complicated, so we’d recommend reaching out to an accountant to help you stay compliant.

Capital gains tax (CGT)

UK residents pay capital gains tax (CGT) on any gains when they dispose of certain assets such as property, land and business assets.

As an expat, you still need to pay CGT on any gains you make on property and land in the UK. However, you may not need to pay CGT on other UK assets — unless you return to the UK within 5 years.

Residency status

Your personal residency status can affect where you need to pay tax and how much tax you need to pay.

The Government uses a Statutory Residence Test to determine your residency status for tax purposes. Normally, you’ll be classed as a UK resident if you spend over half the year in a certain country — but this is not always the case.

If you are a resident, you’ll need to pay UK taxes on global income, as well as income earned from your UK business. Meanwhile, non-residents will only need to pay UK taxes on profits from business activities in the UK.

Meeting your obligations

There are a few more things to keep in mind when it comes to meeting your legal obligations in the UK:

Business licensing and permits

You may need specific licences or permits depending on your business type and location. Research your industry regulations to ensure compliance.

Hiring and employment laws

If you plan on hiring employees, you’ll need to stay in line with employment laws covering aspects such as minimum wage and workplace pension schemes.

Insurance and compliance

Ensure that you have the appropriate insurance, such as public liability insurance or employers’ liability insurance, as required by law.

Other considerations

If you want to build a successful business in the UK, you’ll need to do more than just stay compliant with laws and regulations.

Open a UK bank account

A dedicated business bank account simplifies transactions and financial management and establishes your business’s credibility with local clients and vendors.

Brush up your bookkeeping skills

Implement a robust system to maintain accurate and well-organised records of all your business transactions, invoices, and expenses.

Start networking

Join local business associations and chambers of commerce to network with other entrepreneurs and gain support.

Get the right support

While doing business in the UK is generally straightforward, the legal landscape and tax system is always changes – so be prepared to do some reading!

No matter whether this is your first business or you’re a seasoned entrepreneur, we’d recommend getting support from experts who know the UK tax system like the back of their hand.

We’ve worked with business owners from all walks of life — so why not give us a call?

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