The UK continues to be one of the most attractive places for global businesses to locate to in the world. With one of the most robust and trusted legal systems in the world, for hundreds of years businesses and assets have been far better protected in the UK than in many other jurisdictions; the UK’s legal system is designed to be fair and transparent. The UK has the fifth-largest national economy in the world measured by nominal gross domestic product (GDP).
Many businesses come to the UK as, simply put, it is easier to raise money here. We have firm and flexible regulations which enable the active involvement of hedge funds, private equity, banks and private individuals to invest in businesses through equity, loans and other financial instruments. This gives businesses the air that they require to breathe and grow, in turn giving investors the return that they need. Do also refer to our ‘Doing business in the UK, a tax perspective’. The UK finance system supports the sustained and continuous economic growth of the UK and ensures it is one of the best places to do business in the world.
On 1 January 2021, the UK left the EU, whilst there is no argument that this has been a significant change to the UK’s relationship with the EU, the UK is seen by many as an attractive place to do business and to live, and here is why:
- Relaxation of EU regulations allowing UK businesses to trade more freely with other markets outside the EU
- Businesses outside the EU may have previously been reluctant to locate to the UK, given the control of the EU, pre-Brexit
- Such companies may be more tempted now that the UK is no longer in the EU and businesses are much more in control of their own destiny
There are different types of corporate legal structures that can be incorporated in the UK, most common of which are:
- Limited company
- Partnership (including limited liability partnership ‘LLPs’)
Other structures include sole traders, charities (of which there are several possible structures), UK branches of overseas companies and joint ventures.
The UK is highly regulated to ensure consistent reporting, by the likes of ICAEW, HMRC, FRC and FCA, giving the UK a well-respected reputation. The Government also offers incentives to support growing businesses and such investment factors should also be considered, depending on the nature of one’s industry, such as research and development tax credits.
Accounting standards and IFRS
It is possible for UK companies to adopt the globally recognised IFRS (international financial reporting standards) accounting standards, which provide transparency and ease when carrying out cross border transactions. Adoption is mandatory for UK listed entities. Most UK companies adopt UKGAAP (UK generally accepted accounting principles), the most recent convergence between the standards means these are broadly comparable.
Accounting requirements in the UK
All UK limited companies and LLPs (including public limited companies) need to prepare annual accounts. The Companies Act 2006 requires annual accounts under prescribed accounting standards to be filed with Companies House, even if a company is dormant. Failure to do so will result in penalties. A company’s first accounting period cannot be shorter than six months but no longer than 18 months. The filing deadline at Companies House for a limited company is nine months after the period end (or if the company is a plc, then it is six months after the year end). If you are regulated by the FCA and PRA, there may be different filing deadlines to adhere to with the regulators.
There are exemptions available for small and micro companies (as defined in the Companies Act) to file accounts with fewer disclosures at Companies House. Visit Sections 8 and 9 at Companies House for more information.
Audit requirements in the UK
The audit requirements in the UK are based predominantly on size limits determined by the Companies Act. If entities are part of a group, the size of the entire group needs to be considered to determine whether an audit is required. If the group meets two out of three of the limits, then each entity within the group is required to have an audit. The thresholds currently are:
- Turnover in excess of £10.2m
- Gross assets in excess of £5.1m
- Employees more than 50
If these thresholds are exceeded in the first year, the company will require an audit for the first period. If a company (or the company is in a group where another company) meets the definition of an ineligible company per the Companies act, an audit is required. This generally depends on if the company is listed, has a public interest or conducts certain activities in the remit of financial services, as regulated by FCA and PRA. Visit section 10.3 at Companies House for more information.
Parent company guarantee
If a standalone entity does not meet the thresholds above on an individual basis then there is an exemption available under S479 of the Companies Act. There are however some important things to take into consideration when guaranteeing a company, but essentially the parent company would guarantee all of the liabilities within any subsidiaries it is providing a guarantee for.
There are some requirements that the group needs to adhere to in order to make use of this guarantee. Further details on this can be found on the ICAEW website here.
Partnerships and sole traders
Profits must be reported to HMRC prepared in accordance with UK standards. The profits should be calculated in accordance with established accounting standards.
Making Tax Digital
The Government is widening the scope of MTD, beyond VAT, and MTD for income tax will be mandatory by April 2026. We are starting to prepare our clients who will be affected by this change.
If you are a landlord or unincorporated business who will need to comply with MTD by April 2026, please contact our cloud accounting team here, who will be able to assist.
The team at Gravita are experienced in working with international groups, and provide a tailored service to suit the individual needs of each client. We can provide audit, accounting and tax services to suit each of the needs and complexities of your group structure and dedicate the time to understand this fully.
Complexities and what is involved
We understand that every group is unique and will have different needs. You may have a parent company that is based in the UK with UK based or foreign subsidiaries, or you may have a parent company incorporated abroad. We have extensive experience in auditing UK parent companies, where we also audit the UK based subsidiaries, and also where the subsidiaries are abroad, either working with the overseas accounting team to conduct audit procedures for the subsidiary (where an audit isn’t required in that territory) or working with overseas component auditors. This may be more common with subsidiaries where the audit threshold is significantly higher than in the UK, like the US. We also work on the opposite side of the process by communicating to the group auditors where the parent might be overseas.
Being part of the DFK International association means that we often work with member firms who are the auditors of foreign subsidiaries. The benefit of this to you is that we can recommend trusted professionals, and we have built up a good working relationship with these firms, so we understand how they work, and you don’t have to deal with several firms unfamiliar to each other.
Many entities might not be aware of the implications that Brexit has had on the requirements to prepare accounts, and in particular the impact on international groups. There are ways in which the parent company guarantee can still be used, however this may need to be sought from an intermediate UK parent company. There are consequences of this in that consolidated accounts would need to be drawn up at this level, however we can advise on the implications of Brexit on your group, and also from a tax perspective, if you have any questions, please contact us here).
Gravita have a team of experts who can smoothly guide overseas companies. If you are looking to set-up in the UK, please contact Dan Howarth for help with audit and accountancy.
If you would like to know more about MTD, corporate tax, or personal tax, please click through to our ‘Doing Business in the UK – A Tax Perspective’. Or contact Thomas Adcock for any of your tax needs.