As a foreign national, there are a number of factors to consider when looking to set up a business in the UK.
The following guide will help you to navigate how to open a company in the UK. including what type of visa you may need to apply for and what type of tax you may need to pay. We also look at some of the other steps involved in starting a new UK business, from preparing a business plan to putting insurance in place — each with useful practical tips.
What type of visa is needed to set up a business in the UK?
To set up a business in the UK, even though you’ll be working for yourself rather than for anyone else, you’ll still need permission to undertake self-employed work. In most cases, this means that you’ll need to apply for a suitable visa to obtain leave to enter or stay in the UK.
The Innovator Founder route is for foreign nationals to start a business in the UK.
If you are employed or own a foreign company and you want to expand by setting up UK-based operations, you should look at the UK Expansion Worker visa.
Choose a legal structure for a UK company
There are various different steps involved in starting a UK business, although you’ll first need to select the legal structure under which your business will be run. The type of structure that you decide to use will primarily depend on the nature of the business, whether you’re setting up on your own or with someone else, and whether you’ll be taking on people to help. Most businesses register as either a sole trader, standard partnership or limited company:
As a sole trader, you’ll run your business as a self-employed individual but with no legal distinction between you and the business itself. This means that you can keep any profits your business makes after you’ve paid tax on these, but you’ll be personally responsible for any losses. Setting up as a sole trader is the easiest and simplest option to set up a business in the UK, although you’ll still have accounting responsibilities when it comes to declaring tax.
If you’re starting a business with someone else, a standard partnership is the simplest way for two or more people to run a business together, where you and your partner(s) will personally share any profit and losses. Under this type of partnership, you’ll be jointly liable for any financial risks. You’ll also have certain accounting responsibilities, although you’ll be required to choose a nominated partner to deal with this side of the business. There are different rules for limited partnerships and limited liability partnerships (LLPs).
Starting a company is one of the most complex ways to set up a business in the UK, with significant management and reporting responsibilities, but this does mean that your business will be legally distinct from you as an individual. Profits from a limited company can be drawn as either a salary or share dividends, with tax payable as both a company and as an individual, but the company’s finances will be kept separate from your own finances. In this way, you will be protected from going personally bankrupt in the event that the business fails.
# The way in which you set up a business can affect all aspects of how you run that business and the responsibilities that come with this. By seeking expert advice from the outset, this can help you to make the right choice for your new venture moving forward.
Do you need a business plan to set up a company in the UK?
A business plan will be needed if you’re looking for funding or investment to finance your start-up, although a detailed plan can be a useful planning tool for any business. It can help you to get a clearer idea of your strategic goals, the costs involved and any potential obstacles.
Your business plan should set out in detail your strategy and marketing plan, including your pricing, production costs and advertising spend, so that you can roughly predict your profits. It could also include plans for any predicted growth. By carefully planning your business, this is a great way to assess the budget needed and to pre-empt any pitfalls.
Business plans can vary dramatically depending on the nature, structure and proposed size of the business although, when preparing a plan, consideration will always need to be given to:
Choosing a business name: as a sole trader or partnership you can trade under your own name(s), or you can choose another name for your business. If you’re setting up a limited company, your name cannot be the same as another registered company, although all company names will usually end in either ‘Limited’ or ‘Ltd’.
Rules for your type of business: you may need a licence to run your business, for example, to sell food or trade in the street. There are also certain rules that you’ll need to follow if you sell goods online, buy goods from or sell goods abroad, or store or use personal information.
Where you’ll be working: if you lease somewhere to run your business from, rather than working from your home address, you’ll need to assess what your responsibilities are likely to be, for example, for rent, business rates and upkeep of the premises.
What property, equipment and stock you’ll need: most start-ups will require an initial investment in the things needed to run the business, such as office equipment, computer equipment and stock, for example, if you’re planning to manufacture or sell things.
Becoming an employer: if you’re planning to take people on to work for your business, you’ll have additional responsibilities as an employer, such as running payroll, ensuring the health and safety of staff, and complying with the various employment rights to which an individual may be entitled to in the UK, including statutory holiday and sick pay.
A detailed business plan can not only help to secure any funding needed to set up a business in the UK, it can also assist with planning and preparation. Having expert help when compiling a business plan can go a long way towards maximising your prospects of success.
Funding and finance for new businesses
Many new businesses will require finance when first starting up. If you’re looking to secure funding to set up a business in the UK, through either external investment or a business loan, you’ll almost certainly need to put together a business plan in support of your application.
To apply for a business loan through either a bank or start-up loans company you must be a UK resident, plan to set up a business, and not be bankrupt or significantly in debt. Angel investors are another way to raise finance, although the return on investment can be sizeable. These are high net-worth individuals who provide financial backing for small start-ups or entrepreneurs, typically in exchange for a percentage ownership equity in the business.
Securing finance to set up a business in the UK can often be difficult, especially as a foreign entrepreneur. Having expert help in exploring all possible funding options, and preparing a business plan to support your application, can often pay dividends.
The type of business insurance you’ll need depends on your business. However, whether you plan to have an online shop or a huge set of premises, you’ll need to consider all kinds of cover to protect yourself against the risks associated with running a business, including:
- Buildings and contents insurance: to protect any property, equipment and stock belonging to the business against common risks, such as theft, fire and flooding
- Public liability insurance: to protect against accidental injury to a client or member of the public, or damage to their property, caused by your business activities
- Professional indemnity insurance: to protect against financial loss suffered by a client arising out of any negligent advice or services provided in the course of your business
- Employers’ liability insurance: to protect against employee claims for personal injury or illness arising out of the work that they undertake for your business
- Product liability insurance: to protect against public claims for injury or damage arising out of a faulty product that is designed, made, supplied or even repaired by your business
- Commercial legal protection insurance: to protect against the cost of legal action when your business is involved in a dispute, such as contract issues or debt recovery.
Securing the right kind of cover can help to protect your business from all kinds of risks and liabilities. With expert advice, you can tailor your cover to both meet your business needs and legal obligations, where employers’ liability insurance is compulsory for all UK employers.
Paying UK business taxes
Having set up a business in the UK, the type of tax that you’ll be liable to pay, and how this is paid, will depend on the legal structure used to run your business — as well as your turnover, for example, you’ll need to register for VAT if your turnover is over £85,000.
As either a sole trader or partner, you’ll need to pay Income Tax, plus Class 2 and Class 4 National Insurance Contributions (NICs), on any profits. Your earnings will need to be declared through self-assessment with HM Revenue and Customs (HMRC).
Equally, as a shareholder in receipt of dividends, you’ll be liable to pay Income Tax, although NICs aren’t usually payable on share dividends. In contrast, as a company director on a salaried income, the company will need to be registered as an employer. As an employer, the company will then need to run payroll, through which any tax and NICs must be directly deducted from your director’s salary payments, along with Employers’ NICs.
If you set up a business in the UK as either a partnership or limited company, additional reporting obligations will arise. For a partnership, the nominated partner will be responsible for managing the partnership’s tax returns. As the nominated partner, you’ll be responsible for sending an annual partnership tax return to HMRC, although the partnership itself isn’t taxed.
For a company, the company director(s) will be responsible for filing a company tax return with HMRC, and for filing annual accounts and a confirmation statement with Companies House. Corporation Tax will then become payable on the company’s profits.
Understanding your tax liabilities before you set up a business in the UK can help you to plan ahead. Having expert advice and assistance can also help you to comply with all the strict reporting requirements under the UK’s taxation rules when discharging these liabilities.
How to set up a business in the UK FAQs
How can a foreigner register a company in UK?
To register a company in the UK, a foreign national will need to have a UK-registered office address, although the company directors don’t need to be UK-based.
Is it easy to start a business in UK?
Starting a business in the UK can be a complex process, from deciding what business structure to use to knowing what tax needs to be paid. By seeking expert advice, you can maximise the prospects of a successful start-up.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.