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  • Writer's pictureAccountant High Wycombe

How to Start a Business in the UK

When one starts thinking about one's business, one realizes that opening it in France does this at a cost . You will have to pay taxes, professional dues, VAT, etc. (to which you must add management fees). In addition, it takes time and the idea that you have in mind, you will spend money that you could invest in your new project and time in paperwork and administration.

Knowing that you will have to pay taxes as soon as you start practicing, whatever your activity or how much you earn. That's why, depending on your business, it may be more profitable to start your business in England because the speed and ease of setting up your project, combined with low tax rates make it an ideal place.

The benefits of starting a business in the UK

As we said above, you can not imagine how easy it is to start a business in the UK :

  • You are free of VAT as long as your turnover is below £ 77,000 . There is therefore no need to apply for an intra-Community VAT number at the time of the establishment of the undertaking. What happens once you reach the £ 77,000 threshold? Well you just have to declare it and choose to pay at the end of the year, by levy, the VAT on your turnover up to 10%. This avoids paperwork and calculations.

  • There is no need to declare oneself as independent , let alone pay taxes.

  • All of your business creation or change actions are done online quickly and easily and cost just £ 40. No need for a notary .

  • You have no tax to pay during the first 21 months after starting your business. In addition, you will only have to go to HRMC (Tax Collection Body in the UK) at the end of your first taxable year, which is 9 months after this 21-month period.

  • Accounting is simplified and applications allow you to do all your online transactions without the help of an accountant.

  • If this small list of arguments has convinced you to open your business in England, keep reading as we will now explain how to go step by step.

What type of business to choose?

There are different types of businesses that depend on your project and you will need to know which is the most suitable.

Sole trader: This is the easiest way to set up your business in the UK and therefore there are very few formalities between which to inform the HMRC of the beginning of your activity and declare at the end of every year your profits so you can pay your taxes. On the same model as the micro-enterprise in France , all the profits become immediately property of the natural person. On the other hand, it operates as an unlimited risk company and the sole trader is therefore bound by the debt obligation.

Partnership : This is a variation of the sole trader , in which two or more people combine their talents and networks to create a more profitable business than they could do individually. Each party will receive a percentage of the profits and it is therefore recommended to establish a written contract specifying how the partners will work. Each of the parties will pay its taxes in proportion to the percentage of the profits that it has received. In addition, each is responsible for the debts of the company.

Limited company : The limited liability company is a mercantile company, that is to say, that its social objective is the realization of an activity subject to commercial law. It is formed by a limited number of partners whose capital is equitably distributed within the company. The main advantage is that the debts are specific to the company and do not affect the shareholders . When the company creates profit, it can be converted into a dividend for shareholders or as a salary for employees. It can therefore be optimized to reduce the taxes owed by the company.

Limited Liability Partnership : Similar to the Limited Company , it is handled in the same way. The only difference is in the taxes for which a partnership is considered. As a result, the company is a limited liability company with administrative obligations but does not have the flexibility of National Insurance . It is intended for medium and large companies or in very specific cases.

Self Employed or Limited Company : What is the most interesting?

Each form of business has its advantages and disadvantages, that is why it is essential to understand what each of them can offer and choose the most suitable. It is therefore good to stop a few moments to make the point knowing that your choice will determine most of the steps you will have to make.

Starting a business in the United Kingdom Let's take a closer look at the differences between them:

a) Sole trader

If you are Sole Trader , the profits of the company as well as the other incomes are taxed through the annual self assessment process and the payment of this tax can not be postponed to the following year.

If your annual turnover does not exceed £ 10,600 you do not have to pay taxes. If you go over this threshold then the tax rate is 20%.

In addition, you will have to pay the National Insurance Number (equivalent of social security), which amounts to £ 2.75 per week.

b) Limited Company

Limited liability companies are required to pay 20% of the company's turnover up to the threshold of £ 300,000 per year.

Unlike the Sole Trader , these companies can hold back their profits and distribute them as dividends over future fiscal years if necessary. In this way, an entrepreneur can decide to delay the payment of taxes at the end of a good year and spread it over the coming years.

The advantages of creating a limited liability company compared to Sole Traders are:

  • Private and corporate finances are completely separate and there is no debt obligation.

  • Starting as Sole Trader is very easy, you just have to inform the HMRC of your intention to become independent and you can start working right away.

  • Limited liability companies have more paperwork and it is imperative to present the company's accounts at the end of the year to Companies House .

  • Limited liability companies allow profitable tax planning by establishing wages and dividends, which are not taxable by Social Security. In opposition Sole Traders have as an option only the cashing of the salary corresponding to the turnover and from which the taxes must be deducted.

Starting a business in the United Kingdom

The steps to start a business in England:

  • Decide which type of business is best for you

With the information we've given you, you can get an idea of ​​what's right for you. The most common is to move to a more profitable Limited Company .

  • Choose the name of your company

Choose well. The name must represent the company, taking into account the few standards to follow, mainly because no other company has the same name.

If there is no problem with the name, it will be approved quickly by the House Company

  • Gather the necessary documents to register your business.

There is more information you will need to provide when registering your new company :

  1. The name of the company

  2. A physical address in the UK where House Company can send all the necessary documentation. This is also the address that will appear on the profile of the company.

  3. Detail of the distribution of capital and shares within the company. You must have at least one action

  4. The personal information of the director of the company (who must be at least 16 years old) and, if necessary, those of the secretary.

  5. Personal information of the shareholder (s) of the company. So there must be at least one who can be the director of the company.

  • Prepare Memorandum and Articles of Association

These are the documents that make it possible to form society officially.

The Memorandum is a short document that includes a series of standard articles in which the Shareholders confirm their desire to create the company. This document must be completed and given to Companie House as part of the company's register.

The Articles of Association represents the company's set of rules and standards, defining how the company will be run in the interests of Shareholders . It is very common for a company to adopt the private company Model Articles that covers virtually every case.

Both are done online easily.

  • Register with House Company

Once you have gathered all the previous information, you must send it to Companie House for approval. There are 3 different forms of sending for which there are different prices:

  1. Online steps via the software : Is done through dedicated software that costs £ 13 and has other additional tools.

  2. Classical Online : Through the Companie House website , you'll need to pay £ 15 in fees.

  3. By mail : by sending form IN01 form by mail. It costs £ 40 and the file is processed in 5 days.

  • Wait for the validation of your company

In the case of a limited liability company, you will not be able to start your business until you receive a confirmation from Company House , who will verify the accuracy of the information you have provided. The process is very fast and usually takes two to three hours.

  • Carry out the first meeting between shareholders

Once House Company's approval has been received, there are still some formalities to complete and we recommend doing so as soon as possible. The first is the meeting with the shareholders. It allows to appoint the director of the company.

  • Establish the company's records (and keep them up to date)

  1. UK law requires companies to establish and maintain the following registers:

  2. Register of Directors

  3. Register of Directors' Residential Addresses

  4. Register of Secretaries

  5. Register of Members (otherwise known as Register of Shareholders)

  6. Register of Allotments of Shares

  7. Register of Share Transfers

  8. Register of Mortgages & Charges

  • Other tasks to do

  1. Open a bank account: It is not possible to do it online and you have to go to a branch in the United Kingdom

  2. Sign the certificate of distribution of the shares

  3. Register at HMRC , which may include registration for obtaining a VAT number.

  4. Register and establish the PAY as you earn for employees.

  5. Consider the option of having your name or trademark deposited .

Taxation in the United Kingdom

b) VAT ( VAT in the United Kingdom)

  1. General rate: 20%

  2. Starting a business in the United Kingdom

  3. Reduced rate : 5% for basic necessities and 0% for specific products such as books and children's clothes and some foods.

  4. Exemption: Goods and services outside the VAT system in the United Kingdom are exempt from VAT

c) Property taxes

A regulatory residence test is conducted to determine whether an individual is a taxpayer resident or not in British territory. This test includes a combination of physical presence and correlation factors. When an individual is resident and resident in the United Kingdom, he or she is subject to the United Kingdom Land Statement and Capital Gains Tax in addition to income and earnings internationally.

When he is resident but does not reside in the United Kingdom he is also subject to property tax in the United Kingdom on his income internationally, but may choose to cancel the capital gains tax. adding to income in the context of a transfer which is subject to an additional tax. Non-resident individuals are taxed on income and capital gains originating in the United Kingdom generated by the non-existence of residential property in the United Kingdom.

Deductions and tax credits: the tax exemption can be requested for various reasons: annual turnover below the legal minimum threshold (£ 10,600 in 2015-2016), business expenses, for certain pension contributions, donations to works charity, maintenance costs of the company or for time worked on a boat outside the United Kingdom.

(d) Convention to avoid double taxation

An agreement between the United Kingdom and France dated May 22, 1968 to avoid double taxation and prevent tax evasion with respect to property taxes and property taxes. This convention establishes the following rules:

Dividends: 0%

Interest: 12%

Fee: 10%

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