Know the immigration procedures

An often overlooked aspect of setting up a business in the UK is that of immigration for those outside of the EU.

It is easy to assume that you can enter the UK for business visits on a visitor visa but this is not guaranteed. Anyone coming into the UK from outside the EU for business should be aware they could be refused entry if they do not hold the correct visa or immigration status.

This can have significant consequences, as key players in one’s business may not be allowed into the UK.

Speed to hit the ground

It is easy to get preoccupied about certain issues involved in setting up in the UK but one needs to be aware of how long the process can take.

A client recently asked me to prioritise two areas of importance when entering a new country. I answered the first is “speed”, the other is “cost/cash”.

Although the UK ranks high in the World Bank Report 2014 on ease of doing business placing 10th, it can still take time to put the business processes in place.

For example, it can take up to six weeks for a UK VAT registration to be completed, substantially longer to set up a sponsorship arrangement for immigration, and most clients understand it needs time to set up a bank account.

One also needs to have a clear idea of what kind of structure one has to develop. I have had clients who have incurred significant costs to establish a company, when all they really needed was a branch. This can mean going back to square one.

Cash is king

The second most important consideration when entering a new territory has to be – “how much will it cost?” The cost of setting up is often underestimated as is the funding and cash flow requirements of the business.

From the outset, one needs to be very clear on: how much one will invest, the spending pattern, and when one envisages the funding obligations will reduce. With this in mind, one needs to:

be careful not to over capitalise the company, and to consider a mix of loans and equity.

manage the long-term commitments – what will the costs be over the period?

does one need a lease? Could one use, for example, a serviced office?

Knowing how profit can be extracted

The structure of the company is important particularly around capitalisation. I’ve had clients who have put too much money into their UK company at the beginning and are now going through a lengthy process to reduce their capitalisation.

Taxing times

Taxation can dominate the decision-making process but, while it remains an important element, it should not be the main deciding factor.

On the PwC Annual CFO Survey (2013) – increasing tax borders was a key threat to business.  However, to put this into perspective, The World Bank/PwC paying taxes review 2014 puts UK at 34th for total tax rate out of over 189 countries.

The UK has also been working to make itself more tax-friendly and competitive with the likes of the Netherlands, Luxembourg and Ireland holding companies/headquarters. Part of that process has involved various tax reforms, the reduction of paperwork and providing greater clarity in business approach.

It is also important to be aware of other taxes, for example, VAT. Take for example an overseas company who set up their operation as a relationship office and didn’t expect to incur VAT. However, they spent a lot of money on an office fit out in the UK which exposed them to VAT. While the company may eventually be able to claim that back, it will take a lot of time and effort. Other areas to watch for problems include payroll taxes, as this will usually be one of the business’ highest costs.

Employment and people issues

There are a number of considerations when it comes to human capital. The UK has a standardised arrangement for payroll, with obligations placed on employers to collect taxes. The UK has also seen a changing environment for pensions, with obligations coming in for employers to pay into pension schemes. The process is all transparent but does require an understanding by the employer of the process.

Another major consideration is how one structures the workforce and associated costs. Many companies will look to bring in people from their home markets but that can increase costs substantially compared to local hire.

Ongoing maintenance

An obvious question to ask once the company’s presence is established in the UK is how much the ongoing maintenance of the business is going to cost. The best companies have a clear projection of these costs and one needs to know these are not just limited to tax costs.

Future plans

The UK has historically been used as a stepping stone into other countries. It has one of the largest numbers of double taxation treaties and its approach to holding companies gives it a major advantage when compared to many other territories. When considering the future one may now wish to look closely at the UK as one’s vehicle of choice for entry, mergers and acquisitions, etc.

What’s the exit strategy?

It is important to plan for all contingencies as exiting a territory can be as expensive as entering in the first place.

One needs to consider what the obligations are if one’s operation in the UK does not work out. For example, if the employee base has been employed too quickly, one may well have redundancy obligations, and exit costs to get out of business commitments, for example, leases etc.

Careful planning and having an exit strategy are necessary; then other issues such as getting cash out of the UK company are easily managed.

Trust and reputation – Getting it right!

As with any new territory, one needs to choose one’s advisors carefully, and work with people of trust to get the best advice. It’s important to find someone who has dealt with the particular issues you may be facing and can provide practical support in overcoming them.

The reputational risk is also a key area. The UK has strict rules on bribery and this needs to be understood when using the UK as a base to move into new territories.

In conclusion, the UK government has stated “we want to ensure the UK is the most competitive tax system in the G20 giving a clear message that the UK is open for business”.

From the increase in business/entrepreneurs entering the UK market the message may be getting through!