Starting a business in the UK as a US expat
Published on October 23, 2023
by Rose-ann De Villa, EA, CPA
Rose-ann De Villa, an IRS Enrolled Agent and CPA with 12 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UK.
Rose-ann has also talked about U.S. expats on UK national insurance contributions.
Rose-ann has been mentioned in the Daily Express UK news wherein she talked about Stimulus payments and Child Tax Credit refunds for US expats in the UK.
Are there good business opportunities in the UK for Americans?
Yes, there are! US citizens can start a business in the UK with relative ease; the country has a relatively open business environment that encourages entrepreneurship, regardless of nationality. However, there are some prerequisites you’ll need to meet, such as visa requirements, which brings us to the next point.
“What type of visa is needed to start a business in the UK?” The most common visa for expat entrepreneurs is the Tier 1 (Entrepreneur) visa. This visa allows you to set up or take over an existing business in the UK. To qualify, you’ll generally need to have access to at least £50,000 in investment funds. It’s crucial to consult the latest UK immigration guidelines or seek professional advice to ensure you meet all the requirements.
Incorporating professional advice into your business plan isn’t a sign of weakness; it’s a strategic move. Tax professionals can decode the complex UK and U.S. tax laws for you, making sure you’re not only compliant but also tax-efficient. So, as you explore the entrepreneurial landscape of the UK, consider making a tax advisor your first hire. It could be the smartest business decision you make.
Do US citizens have to report UK company accounts and tax returns to the IRS?
US citizens and Green Card holders who own 10% or more of a UK limited company must file US tax returns for the UK company. This can become complex depending on the UK company structure. If any of the other shareholders are US citizens or immediate family members, the filing requirements can change. Most non-US corporations file with the IRS using Form 5471. There can be large penalties for not filing Form 5471.
What if I’m way behind on my U.S. tax returns?
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What does the legal and regulatory framework look like?
Starting a business in the UK involves several legal steps:
- Choose a Business Structure: The structure you choose, be it a sole trader, partnership, or limited company, will have implications for how you report income, your level of personal liability, and how you can raise capital.
- Register the Business: You’ll need to register your business with Companies House, the UK’s registrar of companies. This involves submitting necessary documents and paying a registration fee.
- Open a UK Bank Account: A business bank account is essential for managing your business finances separately from personal finances.
- Obtain Necessary Licenses: Depending on the type of business, you may need specific licenses or permits.
While the process might seem straightforward, each step has its own set of rules and regulations. If you’re not well-versed in UK business laws, it’s wise to seek professional advice. This is particularly true for sectors like healthcare and legal services, which have specific regulations and may require accreditation.
So, whether you’re navigating the tax laws of two countries or starting a business in a new land, professional guidance can be a lifesaver. It’s an investment that pays dividends in peace of mind and financial stability.
Should I be worried about taxation and financial planning?
Yes, you should. Taxation is a critical aspect that requires meticulous planning when starting a business abroad. In the UK, the tax considerations for expat entrepreneurs are as follows:
- Corporate Tax: If you establish a limited company, it will be subject to corporate tax on its profits.
- VAT: Value-added tax (VAT) is applicable to most goods and services. You’ll need to register for VAT if your business turnover exceeds £85,000.
- Personal Tax: As a U.S. citizen, you’ll still be liable for U.S. taxes, but the UK-U.S. tax treaty may provide some relief from double taxation.
- National Insurance: Both employers and employees have National Insurance contributions, which fund state benefits.
Opening a business bank account in the UK is also highly recommended. A UK business bank account will make it easier to manage finances, pay taxes, and handle transactions. However, each bank has its own requirements, so it’s advisable to hire a tax professional to consult with multiple banks to find the best fit for your business needs.
What about human resources and employment?
Hiring employees in the UK involves several steps:
- Job Posting: Advertise the job vacancy through various channels like job boards, recruitment agencies, or your company website.
- Interviews and Selection: Conduct interviews and select the most suitable candidate.
- Employment Contract: Provide a written statement of employment particulars, outlining the terms and conditions.
- Onboarding: Register new employees with HM Revenue and Customs (HMRC) for tax and National Insurance contributions.
You might also be wondering, “What is the role of a nominee director for expat-owned businesses?” A nominee director can act as a local representative for your business in the UK. While they hold a directorial position on paper, they don’t have the power to make business decisions unless granted by the actual business owner. This arrangement can be a godsend for expats who can’t manage daily operations from afar. Legal advisors can help you set this up correctly to ensure you’re in compliance with UK laws.
Are there any incentives and financial support?
The UK government offers various incentives and grants to encourage entrepreneurship, and these are often available to expats as well. Some of the popular ones include:
- Start-Up Loans: Government-backed loans to help start or grow a business.
- R&D Tax Credits: If your business is involved in research and development, you may be eligible for tax credits.
- Local Grants: Various local councils offer grants to small businesses, so it’s worth checking what’s available in your area.
How to manage finances and legal obligations
Because managing finances and taxes is crucial for the success of any business. Here are some tips for you might be able to use:
- Open a UK Business Bank Account: This will help you keep your business transactions separate from personal ones.
- Use Accounting Software: Modern accounting software can help you track income, expenses, and tax liabilities.
- Hire a Tax Professional: Especially one familiar with both UK and U.S. tax laws, to ensure you’re meeting all your tax obligations.
- Plan for VAT: If your business turnover exceeds £85,000, you’ll need to register for VAT and submit regular returns.
Legal obligations can vary depending on the type of business structure you choose. However, some general obligations include:
- Business Registration: Register your business with Companies House and obtain any necessary licenses or permits.
- Employee Rights: If you hire employees, you’re obligated to respect UK labor laws, which include minimum wage, working hours, and safety standards.
- Tax Filings: Ensure timely filing of all required tax documents, including corporate tax returns and VAT returns, if applicable.
- Record-Keeping: Maintain accurate business records for accounting purposes and in case of an audit.
Visa status and repatriating profits
It’s possible to switch your visa status while running a business, but it’s not that easy. The UK has specific visa categories for entrepreneurs, and you’ll need to meet certain criteria to qualify. It’s crucial to consult with immigration experts to understand your options and the implications of switching your visa status.
You might also be wondering if there are any considerations for repatriating profits from a UK business as an expat? Repatriating profits back to the U.S. involves several considerations. First, you’ll need to be aware of the tax implications in both the UK and the U.S. The UK-U.S. tax treaty aims to prevent double taxation, but it’s advisable to consult a tax advisor familiar with both jurisdictions. Additionally, currency exchange rates can impact the amount you repatriate, so it’s worth considering a multi-currency bank account to mitigate this risk.
Handling the complexities of visa status and repatriating profits can be an exhausting task for any expat entrepreneur. That’s why seeking professional guidance is not just advisable, but often essential for success. Immigration experts can provide tailored advice on visa categories and eligibility criteria, helping you make informed decisions that align with both your business and personal goals. Similarly, a tax advisor with expertise in both UK and U.S. tax laws can help you understand your tax liabilities and take advantage of any available exemptions or credits.
Always get professional advice from a US international tax specialist.
We offer professional, tailored tax advice. Contact us for more information.
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