By Sue Lawrence | Managing Director | TMF Group
Despite the many benefits, US companies entering the UK market face complicated and disparate laws, a significantly different tax environment, and other obstacles – not to mention the potential implications of Brexit.
The United Kingdom (UK), often informally referred to as Britain, is an attractive destination for US companies looking to expand into foreign markets. The two countries enjoy a ‘special relationship’, with close cooperation linked to a common language, democratic ideals, and an intertwined history. This relationship extends to trade and investment.
Despite the many benefits and similarities, US companies entering the UK market face complicated and disparate laws, a significantly different tax environment, and other obstacles – not to mention the potential implications of Brexit. If you are looking to operate in the UK, it is optimal to work with a local partner like TMF UK who fully understands local legal, financial, employment and tax requirements.
Why are US companies investing in the UK?
The US is the largest investor in the UK. American companies have to-date invested around US$600bn in the British market. This figure is nearly a quarter of their total investment in Europe, and accounts for over 12% of US foreign direct investment (FDI) globally.
One of the major draws is how comparatively easy it is to do business in the UK. In the World Bank’s 2018 Doing Business report, the UK was ranked in the top ten countries for ease of doing business, whilst TMF Group’s Global Financial Complexity Index 2018 found it to be one of the world’s least complex countries in terms of accounting and tax compliance.
The UK’s economy is built on strong business foundations, its status as a trading power and competitive tax rates for developing firms. Corporation tax in the UK is currently 19%, and set to fall to 17% in 2020, compared to 21% in the US.
The UK is also known for its multinational, mobile and highly-skilled workforce. However, it is worth noting that the Brexit vote has impacted the number of Europeans applying for roles within the UK, due to uncertainty about their status and rights once the UK leaves the European Union. Recent clarity has helped but it has fed uncertainty.
Setting up and adjusting to UK culture
A new company can be formed and incorporated in the UK within 24 hours, but it can take up to two weeks to complete all the administration. You will need to deal with Her Majesty’s Revenue and Customs (HMRC, equivalent to the IRS) and register your company for Corporation Tax. US businesses coming to the UK should also be aware that the accounts of all UK companies are subject to public disclosure through the Registrar of Companies. In addition a Persons of Significant Control (PSC) Register is also required for every company.
Despite sharing the same language and enjoying much of the same pop culture, the work culture can greatly differ in the two countries.
British people often come across as reserved and reaching a business decision can be a slow process, especially when compared to more dynamic and energised US meetings. You will find that small talk at the start of meeting, particularly about the weather or the difficulties in your journey, is seen as an ice breaker to the main conversation. In older companies, although starting to accept the new environment, business is still shaped by the ‘old boy network’ rooted in schools, universities and family ties. Newer companies, especially the well-publicised wave of technology start-ups, are usually more progressive.
In the UK, employment laws tend to favour the employee as an individual with focus on employment contracts, although they are more aligned to business needs than other EU countries. Positions are more protected than in the US, with British employers and employees required to agree on contractual changes. This is in contrast to the ‘at will’ approach adopted by US firms. However, there are minimal reporting requirements in respect of the workforce.
Driven by technology
The UK is widely accepted as being at the forefront of the burgeoning global financial technology (fintech) sector. It ranks highly in terms of ease of getting start-up credit and also benefits from a talented workforce and a progressive regulator in the form of the Financial Conduct Authority (FCA). London was named as the top city for fast-growing private companies, according to the 2017 Inc. 5000 Europe list.
It is no coincidence that US tech giants have decided to invest in London. Apple, for example, is building a new presence at Battersea Power Station, while Google is investing in a new headquarters in the King’s Cross area of the city. Facebook is also extending its operations and looking to hire more staff in the UK.
In order to keep its crown as the world’s fintech capital, the UK, London in particular but also Cambridge and Oxford, has been working with the US to attract more American entrepreneurs. In February 2018, the US Commodity Futures Trading Commission (CFTC) and the FCA signed an arrangement on collaborating and supporting innovative firms through each other’s fintech initiatives. It includes referring fintech companies interested in entering each other’s market and sharing information and insight derived from each authority’s sandbox, proof of concept, or innovation competitions.
A host of US tech companies are choosing the UK as a base, which suggests that they are attracted more by the ease of doing business than they are put off by questions over the UK’s status in the EU. Post-Brexit Britain sees fintech as the key to strengthening its international role.
Facing the spectre of Brexit
There is still a lot of uncertainty surrounding Brexit negotiations, though ongoing discussions are beginning to yield more clarity. The clock is ticking on Britain’s planned departure from the EU. The UK is set to exit on 29 March 2019, with a transition period lasting until 31 December 2020 – if all goes to plan.
The UK government has stated that one of the benefits of leaving the EU’s customs union is the freedom to pursue trade deals with other regions around the world. The UK’s ability to agree a favourable trade deal with the US, its closest business ally, is therefore seen as crucial for the country’s prospects of establishing itself as an independent trading power.
Talk to us
TMF UK has a team of local experts specialising in accounting, company secretarial, taxation, payroll and capital markets services. We provide a full range of corporate services to help our local and international clients reduce risks, be compliant, control their costs and simplify their operations.
Whether you are looking to set up in the UK, or optimise your existing operations, talk to us to find out how we can help you.
Compliments of TMF Group, a member of the EACCNY