The following is designed to provide general immigration and business law information for those independently relocating to or residing in the United Kingdom and does not constitute legal advice. As with all legal issues, seeking tailored advice from qualified counsel is advisable.
UK IMMIGRATION OPTIONS
It goes without saying that if you intend to work in the UK or remain for any extended period of time, you will require a visa. The most straightforward path to obtaining a visa granting such privileges is through support from an employer, a college or university, or a family member. Yet in the absence of such opportunities, other options, although limited, may still be available. Entrepreneurs, individuals with exceptional talent, and those looking to invest substantial amounts in UK markets may be able to relocate to, or extend their stay in the UK, irrespective of sponsorship from a family member or employer.
Tier 1 (Entrepreneur)
If certain requirements are met, this visa may be available to those with access to £200,000 to invest into a UK business who can demonstrate they are able to support themselves while residing in the UK. Individuals with funding through select competitions, the UK government, and certain venture capital firms can qualify for a reduced funding requirement of £50,000.
The Tier 1 Entrepreneur visa can be held for three years and four months and allows holders to bring their spouse or partner and children. The visa can be extended for another two years, three in certain circumstances. After five years of presence in the country on this visa, it may be possible to apply for settlement in the UK, which grants the privilege to remain indefinitely.
Tier 1 (Graduate Entrepreneur)
Similar to the standard visa for entrepreneurs, students in the UK are able to apply for visa privileges through a less costly option. Only £50,000 in funding is required for the business and the visa is available for one year, with a one-year extension period.
This visa on its own does not permit settlement in the UK but does provide a clear path for transition to the standard entrepreneur visa. One of the primary benefits of this option is that it can be pursued with only £50,000 in funding, as opposed to the £200,000 that would otherwise be required. Investments made to the business within the prior 24 months can satisfy the funding requirement, potentially eliminating any need for additional capital when changing visa types.
Given these relaxed funding standards, as you can expect, the application process can be highly competitive. A limited number of visas are issued each year and candidates must obtain a letter of endorsement from UK trade authorities or an institution of higher education in the UK attesting to the applicant’s entrepreneurial capabilities and the merit of their business opportunity.
Tier 1 (Investor)
This visa requires an investment of at least £2,000,000 into the UK rendering it an option only for those with substantial financial means. To be eligible, the investment must be made in UK government bonds or active and trading UK registered companies. The funds are largely prohibited from investment in the real estate industry.
It can be maintained for up to three years and four months and extended for another two years, with settlement available after five. The settlement timeline is reduced to three years with an investment of £5 million and two years with an investment of £10 million.
Tier 1 (Exceptional Talent)
To qualify for this visa, you must have been endorsed as a recognised or emerging leader in the fields of science, medicine, digital technology, or the arts. As with the graduate entrepreneur visa, the application process is highly competitive and only a limited number of visas are granted each year under this category.
Before applying, an endorsement must be sought from the Home Office attesting to your status in your field of practice. If ultimately granted a visa under this category, you will be able to stay in the UK for up to five years and four months and can extend for another five years. As with other categories, settlement is available after five years.
Rigidity of visa guidelines go a long way to ensuring that expats arrive in the United Kingdom with vetted business plans, verified talent, and financial means to handle the transition smoothly. The downside is that the financial thresholds and competitive nature of the application process may place most of these visas out of reach for many expats, forcing reliance on support from employers or family members to obtain UK visa status.
While the battle is uphill, the hard- working expat entrepreneur with a promising business idea and a bit of wind in their sails may very well be able to access UK market opportunities in a manner that ultimately leads to settlement and residency status. If this describes you, deciding how you will structure your business is the next step.
BUSINESS FORMATION IN THE UK
When doing business in the United Kingdom, your activities can be structured in various ways. It will be important for Tier 1 Entrepreneur visa applicants to select a business structure that will balance tax and administrative efficiency against legal protections provided by more formal arrangements.
Of importance, the decision to form a UK business may not require expats to consider how such arrangements will be taxed by their country of nationality. Unfortunately, due to the worldwide tax and information reporting regime in place in the United States, American expats must actively consider cross border tax and reporting obligations that their businesses will encounter.
Notably, recent changes to the US tax system brought about by the Tax Cut and Jobs Act have created a dynamic environment where American business owners operating overseas will want to revisit any ongoing tax planning or compliance strategies. This legislation establishes a new tax on certain foreign income that can have a profoundly negative impact on individual shareholders of certain foreign corporations. Planning opportunities are available to minimise exposure to this new tax, but existing businesses should take action quickly as these rules are applicable to tax year 2018.
While there are numerous other UK business structures designed to achieve specific funding or operational goals, the information below covers the most common methods for operating UK business activities.
Sole Trader
Without question, operating as a sole trader provides the easiest option for setting up and managing the ongoing administration of your UK business affairs. Sole traders simply register their independent business activity with HMRC and are ready to begin business. Note, however, that many businesses selling products or engaging in other regulated activities will still maintain the responsibility to register for Value Added Tax (VAT) and any other relevant licenses that may be applicable to their business.
The notable drawback of operating as a sole trader is that no limited liability protection is provided. This means that you would remain personally responsible for debts and other liabilities of the business. Given this lack of protection, operating as a sole trader would be a risky option for most business owners.
Partnerships
A partnership in the UK is formed when a group of at least two individuals collectively engage in an activity with the goal of producing a profit. A nominated partner is tasked with registering the business with HMRC and each partner will need to register for self-assessment on their partnership income. Income tax is calculated at each partner’s individual tax rate based on their respective share of partnership income, as if they were sole traders.
A partnership agreement is not required but is recommended in all situations, irrespective of personal or family dynamics that may characterise the business relationship. As is the case with sole trader status, no limited liability protection is offered to owners of these traditional partnerships. Moreover, as partners could potentially be responsible for the business debt attributable to other partners, the risk of operating without limited liability here is even greater than it is for sole traders.
Those wishing to maintain certain tax and operating features of a partnership while ensuring limited liability from debts of the business may want to consider organising a Limited Liability Partnership (LLP). LLPs are required to register with the Companies House, must submit annual financial reports, and are regulated in a similar way to private limited companies described below.
Private Company Limited By Shares (LTD)
Private limited companies are widely popular among UK business owners and are available for both individual owners and group ownership structures. No minimum capital requirement is applicable and limited liability is offered to shareholders, protecting their personal assets from debts of the business. This structure may be desirable for expats who do not want the risk of operating without limited liability, but accounting for tax attributes will need to be a crucial part of the decision.
Establishing a private limited company is relatively straightforward and requires that Articles of Association, along with several other documents, be filed upon formation. The business is not obligated to hold meetings, but financial statements must be submitted annually within nine months of the company’s financial year-end. Smaller companies may qualify for simplified reporting and all private limited companies are subject to annual corporate tax filing responsibilities.
Private limited companies are required to have at least one company director who must be a natural person, but it can be the sole shareholder of the company. Shares in a private limited company cannot be offered for sale to the general public and a transfer of shares can only occur through a private agreement of the shareholder.
Public Limited Company (PLC)
Businesses that want the ability to offer shares of the company for sale to the public are required to organise a public limited company. This type of entity is characterised by significant organisation and administrative costs as well as strict formalities around meetings, voting, and other activities of the business enterprise.
Ultimately, while private limited companies will be the most common operating structure for expat entrepreneurs and business owners, the details of every business arrangement must be closely considered. Tax and immigration laws as well as the ongoing costs of compliance and administration should be factored into the broader decision-making surrounding the appropriate structure for the business.
If you are an American entrepreneur or investor contemplating a new business or a move to the United Kingdom, our firm can assist with developing an effective strategy and ensuring you maintain compliance on both sides of the pond.
Expat Legal Services Group offers unique legal services for American expatriates and foreign nationals with financial interests in the United States. Our firm serves the expat community in the areas of international tax, immigration law, and cross border business and estate planning using a suite of modern technology solutions. Contact Expat Legal Services Group today at info@expatlegal.com or visit the website at www.expatlegal.com. The choice of an attorney is an important decision and should not be based solely on advertising.