Disclaimer: The information in this blog is accurate as of its publication date. Any updates after that date are not reflected here.
Table of Contents
Why Start a Business in the UK as a foreigner?
Starting a business in the UK offers enormous benefits and opportunities to entrepreneurs from around the world. The UK is the sixth-largest economy in the world, behind the United States, China, Japan, Germany, and India. And within Europe, the UK has the second largest economy. Foreign entrepreneurs choose to invest and start a business in the UK because it offers:
- A business-friendly environment for entrepreneurs
- Political stability
- An excellent road, rail, air, and sea transport network
- Rail connection to the European mainland
- Access to highly skilled workers
- Some of the best world-renowned universities and research institutions
- Minimal administrative overheads and ‘red tape’
- Many networking and business growth opportunities, and
- Ready access to many business services, including legal, accounting, payroll, and IT
Legal Requirements for Foreign Entrepreneurs
There are legal requirements for business in the UK, including visas, business structure, and incorporation.
UK business visa requirements
You must have a visa in order to gain entry at the UK border and have the permission necessary to stay in the UK for the purposes of running a business. There are various visa types suitable for foreign entrepreneurs, including the self-sponsorship route and the Innovator Founder visa.
The Self-Sponsorship UK route enables foreign entrepreneurs to set up a business presence in this country, which they can then use to sponsor themselves. This requires establishing a business ‘footprint’ in the UK (e.g. renting premises), obtaining a sponsor licence, and issuing a Certificate of Sponsorship. When planning, it is also vital to understand the self-sponsorship visa UK cost, which includes Home Office fees, Immigration Health Surcharge, and the Certificate of Sponsorship fee. An immigration law firm in the UK can guide you through this process.
The Innovator Founder visa enables foreign entrepreneurs to establish a business in the UK. The business must be endorsed as new, innovative, viable, and scalable by an approved endorsing body in the UK. Successful applicants can stay for up to three years and then, if they wish, apply for British Citizenship.
Business Structure
Foreign entrepreneurs planning to establish a business in the UK will need to select the most appropriate business structure for their needs. Some of the most common business structures in the UK include:
- Sole traders
- Partnerships, and
- Limited companies
Other options include limited liability partnerships (LLPs), Community Interest Companies (CICs), and co-operatives. If you choose to set up a company, you will need to register your business with Companies House and HMRC. For more information on how to choose your business structure and register a company, please see below.
Choosing the Right Business Structure
There are various considerations when deciding which business structure to adopt in the UK. If you are unsure, consider speaking to an accountant in the UK who can explain the various legal and tax implications.
- Sole Trader – this is the preferred option for those who wish to run a business alone, as it is simple and inexpensive to set up. The downside is that sole traders have sole responsibility for any business debts (unlimited liability).
- Limited Company (Ltd) – this is the most popular option chosen by entrepreneurs from overseas. It creates a separate legal entity from its owners and offers limited liability from debts, meaning that the owner’s personal assets are protected.
- Partnership – this is the preferred option for two or more people running a business together. It allows for shared responsibility for debts, and there is no need to register with Companies House (except for LLPs).
Registering Your Business in the UK
UK business registration for foreigners in the UK is a very quick and easy process. To register a limited company in the UK, you will need to complete the following steps:
- Choose your business name – there are certain restrictions that you must avoid, such as not using a business name that is the same or too similar to an existing registered company.
- Register your company with Companies House – You can do this directly with Companies House online or through a company formation specialist. Registration currently costs £50, and your company will normally be registered within 24 hours, and
- Companies House will issue your Certificate of Incorporation.
As part of the registration process, your company will also be registered with HMRC for the purposes of Corporation Tax. You must also register for PAYE (pay as you earn) if you will be employing staff in the UK.
Once your company is registered in the UK, you can start your business here.
Understanding UK Taxation for Foreign Business Owners
It is important to the UK tax system for businesses. The tax system in the UK for foreign business owners is relatively simple and straightforward. If you have a permanent business establishment in the UK, UK tax must be paid. If you live in another country but run a business here, you may also need to pay tax in that country. This is referred to as ‘double taxation’.
The way that your business is treated in terms of UK taxation will largely depend on the type of business structure you have adopted.
If you operate a sole trader or partnership business in the UK, you may need to pay income tax at the following rates:
UK Income Tax rates for 2024/25:
- £0 – £12,570: 0% (personal allowance)
- £12,571 – £50,270: 20%
- £50,271 – £125,140: 40%
- Over £125,140: 45%
Companies, on the other hand, are required to pay Corporation tax in the UK on profits, as follows:
- Small profits rate (companies with profits under £50,000): 19%
- Main rate (companies with profits over £250,000): 25%
In addition, if you pay yourself dividends from your company, you may need to pay dividend tax of between 8.75% and 39.35%.
If your business is classed as a UK Branch of a Foreign Company, this will be taxed on UK-sourced profits (profits are subject to Corporation Tax in the UK of up to 25%).
Finally, you will need to register for, charge, and pay Value Added Tax (VAT) at a rate of 20% if your business has sales in excess of £90,000 per year.
Business Banking and Financial Setup
To operate a business efficiently, it is normally beneficial to open a business bank account in the UK for foreigners. It is important to keep your personal and business banking completely separate.
To open a business bank account in the UK, you will need to be physically present and have a permanent address here. UK banks have strict Know Your Customer (KYC) and anti-money laundering (AML) checks. It is much easier to pass these checks if you have a UK-registered limited company, a UK address & presence, and if your business is not in a high-risk industry such as cryptocurrency and gambling. If you do not have a UK-registered business, there are alternatives such as international or digital banking.
Funding Options for Foreign Entrepreneurs
As a long-established hub for businesses and foreign entrepreneurs, the UK offers a wide range of grants, loans, and investment opportunities; this includes unding options for startups in the UK. The UK government website provides a directory of government grants, including their available locations, sectors, purposes, and amounts.
Business loans are available from a wide range of institutions in the UK, including banks, the government (e.g. business Start-up loans), and specialist loan providers. Strict lending criteria are typically based on business viability and financials, credit history, security and collateral, trading history, the reason for the loan, the ability of the business to repay the loan, and the current market conditions.
For those seeking alternative sources of investment, the UK has a plentiful supply of angel investors, venture capitalists, private equity investors, and crowdfunding investment options.
Hiring Employees and Understanding UK Employment Laws
If you choose to hire employees in the UK, it is essential that you abide by all of the applicable employment laws, including the following:
- Employment Rights Act 1996: this law provides core employment protections, including dismissal, redundancy, minimum notice periods, and employment contracts.
- Equality Act 2010: This law is intended to prevent discrimination against protected characteristics (e.g., gender, age, disability, race).
- National Minimum Wage Act 1998: This ensures that employees abide by ‘fair pay’ rules, including making sure that staff receive at least the legal minimum wage and are protected from exploitation. It is important to bear in mind that non-compliance with the fair pay rules can lead to serious penalties for employers.
- Working Time Regulations 1998: this law includes rules on hours, breaks, and holidays, including limits on the weekly working hours, and
- Health and Safety at Work Act 1974: Ensures that employers consider the risk of harm to their workers and implement measures where necessary.
Marketing & Growing Your Business in the UK
In the modern world, there is no limit to the ways in which businesses can market themselves in order to grow. In the UK, you can market and grow your business using the following approaches:
- Influencer marketing: a rapidly growing marketing method that involves collaborating with influential social media personalities to promote goods and services.
- Digital marketing: including social media, content marketing (e.g. blogs and articles), search engine optimisation (SEO) to ensure higher search engine rankings
- Traditional marketing: including posters, leaflets, brochures, advertisements, television, radio, and telephone sales.
- Events: e.g. industry shows, pop-up events, stalls etc, and
- B2B marketing: e.g. networking and LinkedIn
Common Mistakes & How to Overcome Them
We recommend considering all of the above before you take your new venture to the next level. Some of the most common mistakes include:
- Not doing your homework: The most successful foreign entrepreneurs are those who do their homework. It is important to consider your market, competition, risks, costs, etc, before you proceed too far.
- Failing to draft a business plan: this is essential in ensuring the success of your new venture in the UK. There is no one way to prepare a business plan, but you must consider all aspects, including your products and services, sales, marketing, financials, and location.
- Not understanding the law in the UK: It is imperative that you understand the law in the UK and maintain compliance at all times. For example, you must submit your annual accounts to Companies House each year by the deadline provided and seek planning permission if you wish to change the use of premises.
