UK Establishment vs Subsidiary
Are you thinking about setting up a UK operation? Initially, you may want to test the waters by operating from your home country, with no taxable presence in the UK. However, once a taxable presence in the UK is needed you should consider whether to set up a UK establishment (which includes both branch and place of business), or a subsidiary.
In simple terms, a UK establishment is an extension of the overseas company, while a subsidiary is a separate legal entity and therefore carries less risk towards the parent company. Let’s look at some of the differences and similarities between the two.
Difference Between UK Branch & Subsidiary
Branch in the UK
UK Ltd Company / UK Subsidiary
|Not a separate legal entity||Own legal entity in the UK – so is perceived as having more substance than a branch|
|Extension of parent company wherever established||UK company has limited liability so can be ring fenced from overseas parents|
|Overseas company liable for obligations and liability||Directors have limited liability|
|Requirement to file FULL Profit & Loss of Parent company at Companies House (public records office)||Can engage seamlessly into contractual arrangements|
|These need to be in a specific format approved by Companies House||Needs a Registered Office|
|Requirement to file director details of parent company within one month of opening||Closure time can be six months or longer|
|Difficulty in engaging in legal contracts; practicalities such as mobile phone contracts are not perceived to be as ‘good’ as Limited companies. Reporting requirements of annual accounts and annual return||Reporting requirements of Annual Accounts and Confirmation Statement|
|Tax treatment between UK operation and overseas parent company opportunistic||Easier to register payroll scheme: e.g. Director of Co must have UK National Insurance number, but there are work-arounds for this|
Both a UK establishment and a subsidiary require registration with the UK authorities.
An overseas company may prefer the relative anonymity of a subsidiary as it is only required to file its own annual financial statements whereas a UK establishment is required to file the financial statements of the overseas company
Closing the business
If a UK establishment proves unsuccessful it is automatically closed when its trade ceases. On the other hand, closing a subsidiary involves a few more steps.
From a tax perspective, a UK establishment will only be subject to UK corporation tax on the portion of its profits attributable to it. A subsidiary is subject to UK corporation tax on its worldwide profits.
The choice between a UK establishment and a subsidiary will ultimately depend on the overseas parent company in terms of its group structure, time frame involved and the general business activities.
Goodwille have helped hundreds of businesses with setting up UK establishments and subsidiaries and while most of our clients have historically favoured a subsidiary, it is worth taking specialist advice to make sure the decision you make is right for your business. Contact us today for advice on the most suitable setup for your business.