Guide to UK company incorporation

What makes the United Kingdom (UK) such an ideal location to incorporate your business? We guide clients in the formation and administration of companies, trusts, foundations, and partnerships, providing a wide range of administration, director, and secretarial services for your operational and transactional needs.

Why incorporate your company in the UK?

The UK has one of the largest and most prosperous consumer markets in Europe. It has a GDP of around $3 trillion, which makes it the 6th largest national economy in the world. London alone has a GDP of over $1 trillion when measured as a city economy.

British consumers enjoy relatively high disposable incomes and spending power. The UK consistently ranks around 25th globally in GDP per capita, putting it firmly among the world's affluent developed nations. This translates into a market with significant purchasing power for consumer goods and services.

The UK consumer market is open and integrated with global trade flows. British shoppers have an appetite for international brands and imported products. At the same time, the domestic retail sector is mature and highly competitive across categories.

Beyond consumer spending, the UK offers lucrative institutional markets as well. It has a large private sector supplemented by government procurement across areas like defence, infrastructure, and outsourced services. The UK's financial services industry is also one of the largest in the world.

The British pound sterling is a major global reserve currency actively traded in forex markets. While this exposes exporters to currency fluctuations, it also provides monetary stability and convertibility benefits.

Overall, the size, wealth, openness, and sophistication of the UK economy provides companies across sectors with opportunities to tap into substantial domestic demand as well as global markets by setting up British operations. Its economic fundamentals remain robust despite any near-term cyclical pressures.

Advantages of incorporating a company in the UK

In the Institute of Management Development (IMD)'s 2023World Competitiveness Ranking, the UK ranked 29th. The UK was ranked 34th. One of the main strengths of the UK economy in attracting FDI is that its economy is one of the most liberal in Europe, while its business environment is extremely favourable.

The UK is a large and dynamic marketplace

The UK is a large and dynamic marketplace in its own right, but also benefits from being an excellent gateway to other parts of the world. Foreign investors coming to the UK can experience its many advantages, which include:

having one of the highest 'ease of doing business' scores globally, according to the World Bank a company can be incorporated in just one day; there is no minimum capital requirement (other than at least one share must be issued on incorporation) the initial share capital is commonly less than £100; there must be at least one director appointed (and this director does not need to reside in or be a citizen of the UK) and Company Secretary is an optional position for private limited companies (you can appoint one if you feel it will assist in administering your company);
English law – The UK legal system is globally recognised, and many overseas-based territories replicate its legal process;
the UK has a solid, credible, and long-established structure for companies to build a business;
another primary reason for moving operations into the UK is the vast pool of skilled employees – the UK is both a magnet for global talent and a deep pool of high-skilled homegrown talent;
the UK has established itself as a global centre of academic excellence, with strong links; between academic institutes and businesses
excellent transport links with the rest of the world;
a central time zone position, ideally placed between the markets of the East and West;
accessibility of language;
one of the world’s global financial centres; and
a top-class environment for research and development work.

UK corporate tax rate

The UK's corporate tax regime also has a number of attractive features:

UK Corporation tax rate is 25%. Although this increased from April 2023 from 19% it remains extremely competitive especially with the world moving to global minimums. The 19% rate will still continue to apply to (small) companies with profits of no more than £50,000, with marginal relief for profits up to £250,000
The UK has the largest network of double tax treaties in the world. The UK government offers a strong package of tax reliefs and incentives to support innovation and growth in technology and fintech companies

Excellent jurisdiction for international holding companies

The UK is considered to be an excellent jurisdiction for international holding companies for many reasons, including:

most foreign dividends are exempt from UK tax. Dividends received by a UK company are exempt from UK tax subject to certain conditions. These conditions vary depending on whether the recipient is a small, medium, or large company;
no UK withholding tax on dividend payments to shareholders. The UK does not impose withholding taxes on the distribution of dividends to shareholders or parent companies. This is regardless of where in the world the shareholder or parent company is resident;
no capital gains tax on the disposal of shareholdings in subsidiaries, subject to meeting certain conditions;
no capital gains tax on profits from the disposal of UK holding company shares by non-resident shareholders. Non-UK resident shareholders are not subject to UK capital gains tax on disposals of shares they hold in a UK company;
extensive double tax treaty network, thereby minimising withholding taxes on dividends received; and
no capital duties on paid-up or issued share capital. Stamp duty of 0.5%, calculated on the transfer value of the shares, is payable on subsequent transfers.

UK capital gains tax exemption

There is no capital gains tax on the disposal of a 'substantial shareholding' in a trading company or a holding company of a trading group or a sub-group.

A substantial shareholding is a holding of at least 10% of the ordinary shares in another company that have been held for a continuous period of at least 12 months in the six years preceding the sale.

A trading group is a group where one or more of the members carry on trading activities, and the activities of those members taken together do not include a substantial component of nontrading activities, which means that such non-trading activities should not form more than 20% of the total turnover within the group.

For disposals on or after 1 April 2017, the requirement that the company being disposed of remains a trading company (or holding company of a trading subgroup) immediately following the disposal will no longer apply unless the disposal is to a related party.

Further, there is a relief for disposals of shares in companies which are materially owned by qualifying institutional investors (‘QIIs’).

UK tax incentives for research and development

Research and development (R&D) reliefs support companies that work on innovative projects in science and technology. They can be claimed by a range of companies that seek to research or develop an advance in their field. They can even be claimed on unsuccessful projects.

The UK government offers a strong package of tax reliefs and incentives to support innovation and growth in technology and fintech companies. Here's a breakdown of the key programs.

Research and Development (R&D) tax relief (updated as of April 2024)

Companies engaged in qualifying R&D activities can claim relief on their Corporation Tax bill. This applies to both revenue and capital expenditure
A single scheme now combines the previous SME and RDEC schemes, simplifying the process
Qualifying projects must involve scientific or technological advancement, overcoming uncertainty in your field, and contributing to the knowledge base
Companies can deduct an extra 86% of their qualifying R&D costs from taxable profits (on top of the normal 100% deduction) for a total of 186% relief

Tax credit

The actual tax credit benefit can vary depending on the company's profitability and Corporation Tax rate. Companies with lower profits or a lower Corporation Tax liability can receive a credit worth 13.5% of their qualifying expenditure. This credit can be used to reduce Corporation Tax or be paid out as a cash refund (subject to limitations).

Intensity requirement

The merged scheme also introduced an "intensity requirement." To qualify for the enhanced relief (including the tax credit), a company's R&D expenditure must be at least 30% of its total expenditure for loss-making companies, or at least 10% of its total expenditure for profitable companies.

Additional tax reliefs and incentives

Patent Box Regime: Companies with qualifying patents can benefit from a lower Corporation Tax rate (10%) on profits earned from those patents
Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS): These schemes provide tax relief for individuals investing in early-stage companies, including technology and fintech
a. EIS offers 30% upfront income tax relief on investments up to £1 million per year
b. SEIS offers 50% upfront income tax relief on investments up to £100,000 per year
Venture Capital Trusts (VCTs): Investors in VCTs holding qualifying companies (including technology and fintech) can claim 30% upfront income tax relief on investments up to £200,000 per tax year
Annual Investment Allowance (AIA): Companies can deduct the full cost of qualifying equipment investments (including computers and software) from their profits before tax, up to an annual limit of £1 million

The principal ways for a foreign investor or company to carry on business in the UK are as follows:

Branch company

The overseas company retains ownership and control of the branch. The branch will not have a separate legal personality, so the overseas parent company is liable for the debts and obligations of the overseas establishment.

A branch is often a favoured option for overseas businesses in the early stages of international expansion. Once a solid business presence has been established, branch activities are usually transferred to limited companies.

Need help setting up a branch company? Contact our expert team.

Limited company

A limited company is a separate legal entity with its own limited liabilities. This is much more substantial than a branch and offers greater assurance for customers and others who come into contact with the business.

Overseas companies establishing a limited company in the UK may do so by setting up a subsidiary. The overseas company, as the parent company, will have complete ownership and therefore control of the English subsidiary. The most popular corporate vehicle is a private company limited by shares.

Advantages of private limited companies

Separate legal personality. The subsidiary can sign contracts on its own behalf, own assets and is liable for its own debts
It can be formed with a single member but has no statutory limit on the number of shareholders
The liability of its shareholders to contribute to the assets of the company is limited to the amount, if any, unpaid on the shares held by them
Incorporation can be undertaken quickly in one day and at a low cost
Only one director is required, and company secretaries are optional
It is possible to re-register as a public company, subject to satisfaction of certain requirements
There is no minimum issued share capital

Limited liability partnerships are separate legal entities and must have at least two members, which can be natural persons or body corporates, and at least two designated members.

What are the advantages of limited liability partnerships?

The liability of members can be limited to the amount of their capital investment in the LLP. Limited liability protects the members’ personal assets from the liabilities of the business. LLPs are a separate legal entity from the members
No statutory upper limit on the number of members (although there must be a minimum of two members)
Flexibility – the operation of the partnership and distribution of profits is determined by a written agreement between the members, which allows greater flexibility in the management of the business
The LLP is deemed to be a legal person. It can buy, rent, lease and own property; employ staff; and enter into contracts
Corporate ownership – LLPs can appoint two companies as members of the LLP. In an LTD company, at least one director must be a real person
Designate and non-designate members. You can operate the LLP with different levels of membership
No capital maintenance requirements
The activities of the LLP are treated as carried out by the individual partners, so the individual partners are separately subject to income tax on their share of the profits or losses of the LLP
Profit cannot be retained in the same way as a company limited by shares. This means all earned profit is effectively distributed with no flexibility to hold over profit to a future tax year

Should you set up a business in the UK?

The UK is a flexible and business-minded location, historically recognised as a well-established and reputable jurisdiction to conduct business.

The UK’s position, both geographically and in respect of business culture, put it at the centre of a diverse collection of markets and sectors. Its open market and diversified economy present opportunities for new investors to access a domestic market and to use the location as a gateway to the rest of the world. The UK remains one of the most attractive places in the world to invest in and trade with.

The UK offers a highly skilled and productive workforce, with strengths across many industries from finance to technology. Its legal system provides robust protections for property rights and intellectual property. The nation's world-class universities supply a pipeline of talented graduates.

UK businesses also benefit from an excellent infrastructure for transportation, telecommunications, and utilities.

Additionally, the UK provides a favourable tax environment beyond just the R&D incentives. It has a competitive corporation tax rate and a range of tax reliefs aimed at stimulating enterprise and investment. The UK's stable political system, transparent regulatory framework, and membership in prestigious economic blocs like the G7 add to its credentials as a prime investment destination.

So, for companies looking to establish an R&D hub, export base, regional headquarters or other operation, the UK presents a compelling mix of innovation incentives, pro-business policies, and strategic geographic access that is hard to match globally.