When you start to think about your business, you realize that opening it in France has a cost. You will have to pay taxes, professional dues, VAT, etc. (to which you must add management fees). Moreover, it takes time and depending on the idea you have in mind, you will spend money that you could invest in your new project and time on paperwork and administration.
Knowing also that you will have to pay taxes as soon as you start exercising, whatever your activity or how much you earn.
This is why, depending on your activity, it may be more profitable to set up 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 setting up a business in the UK
As we said above, you would have no idea how easy and fast setting up a business in the UK is:
- You are exempt from VAT (i.e. you do not pay it but you do not charge it either) as long as your turnover is below £77,000. There is therefore no need to apply for an intra-community VAT number when setting up the business. What happens once you hit the £77,000 threshold? Well, you just have to declare it and choose to pay at the end of each financial year, by direct debit, the VAT on your turnover up to 10%. This way you avoid paperwork and calculations.
- There is no need to declare yourself as self-employed, and even less to pay taxes.
- All your business creation or modification actions are done online quickly and easily and only costs £40. No need for a notary.
- You do not have to pay any tax during the first 21 months following the creation of your company. In addition, you will only have to deal with the HRMC (Body responsible for collecting taxes in the United Kingdom) until the end of your first taxable year, that is to say 9 months after this 21-month period.
- Accounting is simplified and applications allow you to carry out all your operations online without the help of an accountant.
If this small list of arguments has convinced you to open your business in England, continue reading because we will now explain how to do it step by step.
What type of business to choose?
There are different types of companies depending on your project and you will need to know which is the most suitable.
This is the simplest form of setting up a business in the UK and therefore there are very few formalities between informing the HMRC of the start of your activity and declaring at each end of the financial year, your profits so you can pay your taxes.
On the same model as the micro-enterprise in France, all profits immediately become the 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.
This is a variation of the sole trader, in which two or more people combine their talents and networks to create a business that is more profitable than they could individually. Each of the parties will receive a percentage of the profits and it is therefore recommended to draw up a written contract specifying how the associates will work.
Each of the parties will pay its taxes in proportion to the percentage of profits it has received. In addition, each is responsible for the debts of the company.
The limited liability company is a mercantile company, that is to say, its corporate objective is to carry out an activity subject to commercial law. It is formed by a limited number of partners whose capital is fairly 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 generates profit, the latter can be converted in the form of a dividend for the shareholders or in the form of a salary for the employees. It can therefore be optimized to reduce the taxes owed by the company.
Limited Liability Partnership
Similar to the Limited Company, it is managed in the same way. The only difference lies in the level of taxes for which a Partnership is considered. As a result, the company is a limited liability company, with administrative obligations but it does not have the flexibility of National Insurance. It is rather intended for medium and large companies or in very specific cases.
Self Employed or Limited Company: Which is more interesting?
Each form of business has its advantages and disadvantages, which is why it is essential to understand what each of them can offer and choose the most suitable one. It is therefore good to stop for a few moments to take stock, knowing that your choice will determine most of the steps you will have to take.
Let's take a closer look at the differences between them:
If you are a Sole Trader, business profits and other income are taxed through the annual self-assessment process and the payment of this tax cannot be postponed to the following year.
If your annual turnover does not exceed £10,600 you do not have to pay tax. If you exceed this threshold then the tax rate is 20%.
In addition, you will need to pay the National Insurance Number (equivalent to social security), which is £2.75 per week.
Limited liability companies must pay their tax in relation to the turnover of the company up to 20% and this up to the threshold of £300,000 per year.
Unlike the Sole Trader, these companies can retain their profits and distribute them as dividends over future tax years if necessary. In this way a business manager can decide to delay the payment of taxes at the end of a good year and spread it over the years to come.
The advantages of creating a limited liability company compared to those of Sole Traders are:
- Private and corporate finances are completely separate and therefore there is no debt obligation.
- Getting started as a Sole Trader is very easy, just let HMRC know you want to become self-employed and you can start working straight away.
- Limited liability companies involve more administrative paperwork and it is imperative to present the accounts of the company at the end of each year to the Company House.
- LLCs allow for cost-effective tax planning by setting salaries and dividends, the latter of which are not taxable by Social Security. In opposition, the Sole Traders, only have the option of collecting the salary corresponding to the turnover and from which taxes must be deducted.
Steps to setting up a business in England
Deciding which type of business is best suited to your needs
With the information we have given you, you can get an idea of what is right for you. The most common is to move towards a Limited Company, which is more profitable.
Choose your company name
Choose well. The name must represent the company well taking into account a few standards to follow, mainly that no other company has the same name.
If there is no problem with the name, it will be quickly approved by the Company House
Gather the necessary documents to register your business.
There are several pieces of information you will need to provide when registering your new company:
- Company name
- A physical address in the UK where Company House can send all necessary documentation. This is also the address that will appear on the company profile.
- Details of the distribution of capital and shares within the company. You must own at least one share
- The personal information of the director of the company (who must be at least 16 years old) and, if necessary, that of the secretary.
- The 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 allow the company to be officially incorporated.
The Memorandum is a short document including a series of standard articles by which the Shareholders confirm their will to create the company. This document must be completed and submitted to Company House as part of the company's register.
The Articles of Association represent the set of rules and standards of the company, defining how the latter will be managed in the interest of the Shareholders. It is very common for a company to adopt the private company Model Articles which covers almost all scenarios.
Both are easily done online.
Register with Company House
Once you have gathered all the previous information, it must be sent to Company House for approval. There are 3 distinct forms of shipment for which there are different prices:
- Online procedures via software: Is done through dedicated software which costs £13 and has other additional tools.
- Classic online procedures: via the Company House website, you will then have to pay a £15 fee.
- By post: by sending the IN01 form by post. 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 confirmation from Company House, which is responsible for verifying the accuracy of the information you have provided. The process is very quick and usually takes two to three hours.
Once the Company House approval has been received, there are still a few formalities to be completed which we recommend you do as soon as possible. The first is the meeting with the shareholders. It allows to appoint the director of the company.
Establish company records (and keep them up to date)
UK law requires companies to establish and maintain the following records:
- Register of Directors
- Register of Directors' Residential Addresses
- Register of Secretaries
- Register of Members (otherwise known as Register of Shareholders)
- Register of Allotments of Shares
- Register of Share Transfers
- Register of Mortgages & Charges
Other tasks to perform
- Open a bank account: It is not possible to do this online and you have to go to a branch in the UK
- Sign the share distribution certificate
- Register with HMRC, which may include registering for a VAT number.
- Record and establish PAYE (Pay as you earn) for employees.
- Consider the option of registering your name or trademark.