Factors Impacting Doing Business in the UK
Information on the various factors that may have an impact on doing business in the UK. These include grants, intellectual property laws, transfer pricing, bank account set up, business insurances, exchange control and sustainability...
Bank Account Set-up
Generally, all new businesses will require a bank account in order to conduct their business in the UK.
Before setting up a bank account for their new customers, UK banks undertake customer due diligence, which is part of the anti-money laundering regime and is a key requirement of the Money Laundering Regulations 2007 in the UK. This involves verifying the identity of the customer and their source of funds and obtaining information on the intended purpose and nature of the proposed bank account.
You should not therefore underestimate the time it takes to set up a business bank account and should begin liaising with the bank of your choice as soon as possible.
Apart from Employee Liability Insurances, most insurances are at the discretion of the company. Ideally, a company may consider extending cover from its home country for some insurances, such as director and officer insurance, public liability and product liability. Alternatively, it may seek a broker to obtain local cover and include property and content insurances as well as various employee insurances for travel, health, etc.
Acquiring or taking a lease of property in the UK can be a more lengthy process than in other countries. Property can be owned by corporations and individuals. There are no significant legal differences in the way that corporations and individuals, non-UK or otherwise, may hold property in the UK. However, as a general rule no more than four persons, whether individuals or corporations,can be shown as legal owners of property.
Property can be owned either absolutely and for an unlimited duration (freehold) or may be rented for a specified period from another person under a lease agreement (leasehold).
Taking a lease of a property may involve being subject to a number of conditions on use, as the person granting the lease (the landlord) has a greater interest in preserving the property and their income. On the purchase of a leasehold interest, you, as tenant, may be required to pay the landlord a sum of money (known as a premium) to acquire the lease and will be required under the lease to pay rent to the landlord as well as costs for the occupation of the premises, as with a freehold. Leases may be considered easier to dispose of, although they may require the consent of the landlord to sell or underlet. Leases are a practical way to manage your time in the UK and rental payments, as opposed to acquisition costs, may assist with cash flow.
For immediate occupation requirements, serviced offices are available and short term leases up to a year are available on occasion. In both cases, these tend to be only for premises where the landlord is providing all the services.
The UK does not have exchange control. There is complete freedom of movement in respect of all capital and current account transactions, not only with member states of the EU, but with all countries.
Customs and Import Duty Planning
If your business involves the importation of goods into the UK from outside the EU, the goods will have to be declared for customs purposes and may be subject to customs duties and import VAT. It should be noted that the European Union is a customs union, which means that the EU is treated as a single territory for customs purposes and the same rules and rates apply in each member state. This means that, once goods are in “free circulation” (i.e. all duties paid and import formalities completed) in one member state, they can move freely between all other member states without further payment of customs duty. There are essentially three areas that determine the amount of duty payable on goods imported from outside the EU:
- Classification – the amount of duty payable depends on how the goods are classified for customs purposes, as this determines whether goods are subject to ad valorem duty rates or to specific duty rates based on volume
- Valuation – where goods are subject to ad valorem duty rates, EU customs valuation rules require the addition of certain cost elements, e.g. freight and insurance, Certain elements may, in certain circumstances, be excluded. It should be noted that, where the parties are related, the customs authorities may require evidence that prices are at arm’s length
- Origin – it should be noted that the EU has many free trade agreements and preferential trade arrangements in place for a large number of countries, which means that eligible goods enter the EU at reduced or zero rates of duty. Conversely, certain goods from certain countries may be subject to trade defence measures, such as antidumping, anti-subsidy (also known as countervailing) or safeguard measures, which generally take the form of additional duty. Careful consideration must, therefore, be given to the customs implications of any sourcing or production decisions
Depending on whether imported goods undergo further processing, there is a range of customs reliefs, regimes and simplified procedures available to UK importers to delay or suspend the payment of customs duty and import VAT. The rules relating to these areas are complex and it is, therefore, important to seek advice before imports commence.
Various financial incentives and other forms of support can be obtained by businesses wishing to establish or develop operations in the UK. The availability and potential level of grant support is influenced by the following factors:
- geographical location within the UK
- the number and quality of jobs created or safeguarded
- the need for assistance
- the size of the company to be assisted
Incentives are available for both manufacturing and service sector companies.
Some of these incentives are targeted specifically at SMEs (small and medium-sized enterprises). Broadly, an SME is a company that has:
- less than 250 employees and
- not more than 25% of its share capital is owned by non- SMEs
- a turnover of less than €40m or
- a balance sheet total of less than €27m
You should take steps to protect your company’s intellectual property, especially as many rights are territorial in nature and therefore may require active steps to ensure protection in the UK. You may, for example, wish to register trade marks to protect your company’s or group’s corporate name, trading style or product/service brands. Intellectual property rights (IPRs) are increasingly regarded as a company’s most valuable assets. This means that effective protection and enforcement of IPRs is of crucial importance, as is ensuring that third parties’ IPRs will not be infringed.
The most common rights to consider are:
- registered trade marks
- rights in passing off (common law rights for protecting an unregistered trade mark)
- registered and unregistered designs
- copyright and associated rights
- database rights
- confidential information, trade secrets, know-how (strictly speaking, these are not IPRs but are often treated as such)
You should seek expert legal advice in order to:
- identify your IPRs
- avoid infringing the IPRs of others
- secure protection where active steps are required
- where necessary, approach any third parties who you think may be infringing your IPRs
If you have not registered a mark, you may be able to enforce your common law rights through a “passing off” action. In order to succeed in a passing off action, you will need to prove:
- you have goodwill or a reputation in the name, logo or ‘get-up’ in question such that members of the public associate the mark with your goods and/or services
- there has been a misrepresentation by a third party leading or likely to lead members of the public to believe that the third party’s goods/services and goods/services of your business are the same
- you have suffered or are likely to suffer damage (financial loss) as a result of the misrepresentation
Research and Development
Relief for expenditure of a revenue nature on research and development that is related to the company’s trade and is undertaken by the company or on its behalf is wholly allowable as a deduction. In certain circumstances, enhanced relief is available.
Expenditure of a capital nature on research and development related to the company’s trade is also wholly allowable as a deduction (i.e. 100% allowances are available). This covers capital expenditure on the provision of laboratories and research equipment. However, no allowance is available for expenditure on land. If any proceeds are received from the disposal of the capital assets, the receipt is taxed as a trading receipt.
In 2008 the UK passed the Climate Change Act which legally binds the UK Government to achieving future carbon reductions. Whilst the overall direction of travel is clear, some of the detailed regulation and government incentives that will be offered to achieve these goals are still being developed.
Low carbon economy incentives
The good news is that there are a range of schemes to provide incentives for low carbon investment in the UK. These include:
- Tax savings
- Renewable energy incentives
- Small scale renewables