Setting up a UK branch

Overview 📘

An overseas company looking to start operating in the UK will generally consider either setting up a UK branch or incorporating a separate UK limited company.

A UK branch can be a relatively straightforward way to establish a presence in the UK, but it is important to understand that the branch is not a separate legal entity. It remains part of the overseas company, which means the overseas company remains responsible for the branch's activities, debts and obligations.

The right structure will depend on how you plan to operate in the UK, how much separation you want between the UK and overseas businesses, and the tax and reporting requirements in both countries.

🏢 What is a UK branch?

A UK branch, formally referred to by Companies House as a UK establishment, is a place of business or branch of an overseas company in the UK.

It is not a new company or a separate legal entity - instead, the overseas company extends its existing business into the UK.

If the overseas company establishes a physical presence in the UK from which it carries on business, it will normally need to register that establishment with Companies House. The registration must be made within one month of opening the UK establishment.

Registration of the branch requires form OS IN01 together with supporting documents, which can include:

• the overseas company's constitutional documents
• certified English translations where documents are not in English
• the overseas company's latest accounts, where required under the law of its home country

Companies House registration is not normally required merely because an overseas company has UK customers. There generally needs to be some degree of physical presence in the UK.

🔍 How is it different to a UK limited company?

The main difference is that a UK limited company is a separate legal entity, whereas a branch remains part of the overseas company.

This has some important practical consequences:

Neither option is automatically better. The appropriate structure will depend on the commercial plans for the UK business and the requirements of the overseas parent.

✅ Benefits of a UK branch

A branch can work well where a business wants its UK operation to remain part of the existing overseas company rather than creating a new subsidiary.

Potential benefits include:

• No separate company is required. The UK operation remains part of the existing overseas business.
• Direct ownership and control. There is no separate UK shareholder structure to maintain.
• The existing business can operate directly in the UK. Contracts and commercial activities can generally be carried out by the overseas company through its UK establishment.
• It may suit businesses that want the UK operation fully integrated with the overseas business, rather than operating through a separate subsidiary.

The UK Government's business guidance describes a branch as relatively easy and inexpensive to establish, although the Companies House registration process involves more supporting documentation than incorporating a straightforward UK subsidiary.

👎 Downsides of a UK branch

The lack of legal separation can be a significant disadvantage.

Because the branch is part of the overseas company:

• The overseas company is directly responsible for UK liabilities and obligations. There is no separate UK company to contain those risks.
• There can be additional Companies House filing requirements. Most overseas companies with a UK establishment are required to file accounts in the UK. The exact requirements depend partly on the accounting rules in the company's home country.
• Information about the overseas company must be kept up to date with Companies House. This includes certain changes to the company's details, officers and the UK establishment.
  • Companies House must be notified of these changes on paper, currently branches cannot file  minor administrative changes online.
• The overseas company's accounts may form part of the UK filing requirements. For companies already required to prepare and disclose accounts under their home-country law, copies of those accounting documents generally need to be delivered to Companies House.
• Administration can span two jurisdictions. The overseas company's home-country requirements still continue, alongside the UK branch's UK obligations.

This means a branch is not necessarily administratively simpler than a UK subsidiary in every case.

💡 Other things to consider

Corporation Tax

• A UK branch will usually create a permanent establishment (PE) for tax purposes. This means the overseas company may be subject to UK Corporation Tax on profits attributable to its UK activities.
• The relevant double tax treaty should also be reviewed, as this can affect whether a PE exists and how profits are taxed.
• Most overseas companies with a registered UK establishment will also need to file accounts with Companies House. Where the company already prepares accounts in its home country, these will generally need to be filed in the UK as well.

💡 Companies House registration and the Corporation Tax position are separate tests, so tax obligations can arise even where UK establishment registration is not required.

Payroll and VAT

• A branch can set up a UK payroll, hire employees and operate payroll as normal.
• A branch can also register for VAT and submit VAT returns as normal.

🔍 Key takeaway

A UK branch can be a good way for an overseas company to operate directly in the UK without creating a separate UK subsidiary.

However, the overseas company remains legally responsible for the UK operation, and a branch can brings about its own tax, payroll, accounting and reporting obligations.

Before deciding between a branch and a UK limited company, it is worth considering both the UK requirements and the tax and legal consequences in the overseas company's home country.

If you're considering setting up a UK branch, please get in touch before taking action. We can help you understand the UK registration, accounting and tax requirements and whether a branch or subsidiary is likely to be the more appropriate structure.