When you are considering an international expansion, understanding local practices and market regulations can make a huge difference to your initial experience and ongoing success. This is especially true the United Kingdom (UK), as doing business in the UK comes with some unique benefits and challenges.
Key Takeaways
1. Despite Brexit, doing business in the UK is still a valuable proposition for many organisations. Plenty of opportunities exists for businesses that want to leverage the benefits of the UK’s new position as an independent nation.
2. The UK has a rich and diverse population and a huge workforce. This can deliver significant benefits to your business.
3. Clearly defined worker protections make it much easier for businesses to make sure that they are meeting all their obligations under UK employment law, such as minimum wage and providing holiday pay.
4. The UK has a relatively complicated tax system made up of various regulations and laws. It is therefore important to make sure you have plans in place for achieving compliance before you start doing business there.
Despite all the goings on of the last recent years because of Brexit—which has now completed: the UK officially left the European Union on January 31st, 2020 at 11:00 pm GMT—the UK is still an attractive investment opportunity for many overseas organisations. In 2017, it was the world’s sixth-largest economy with a nominal GDP of $2.638 trillion.
And it’s not just in England, other ‘constituent countries’ of the UK such as Wales, present a strong business proposition.
While it continues to represent an attractive investment proposition, it is still important for investors to carry out careful planning before doing business in the UK. Understanding local market regulations, best practices, laws, and customs can go a long way to not only protecting your commercial operations from legal penalties but also allowing them to succeed.
In this article, we are first going to look at some of the key benefits and challenges of doing business in the UK. We will then quickly look at all the things unique to doing business in the UK that you need to consider if you are hoping to expand your operations and employ people.
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5 Benefits of Doing Business in the UK
There is a reason why so many international corporations choose to do business in the UK.
Often, it is the first economy businesses will expand to outside of their home countries because the UK provides access not only to an affluent and educated populace but also the potential to do business with other countries across Europe even despite Brexit.
For more information on the impact Brexit has on UK and European expansion see Three Benefits of Global PEO for EU Companies After Brexit.
Here are five key benefits of doing business in the UK:
1. Doing Business is Relatively Straightforward
By far the biggest benefit of doing business in the UK is how easy and straightforward it is. According to the World Bank, the UK has one of the highest “ease of doing business scores” out of most countries across the world.
This is because of how easy it is to enter the market; there are fewer costs and restrictions on starting a new enterprise in the UK when compared to other developed countries in Europe and the rest of the world. There is also a much higher availability of commercial opportunities across different market sectors due to the UK’s strong industry and manufacturing background and its current position as a global tech hub.
The UK also has a strong business infrastructure and huge improvements in key areas including energy, transportation, and telecommunications are currently being made.
2. The UK Has a Highly Skilled Workforce
Another big reason that firms choose to expand into the UK is its history of educational excellence, home to some of the world’s oldest universities.
As a result, the UK has a vast pool of skilled employees that are readily available for work.
In total, the UK has a workforce of over 30 million, making it one of the largest workforces in Europe. It is also one of only a few European countries that are expected to see large growth in labour supply over the next few decades. This is partly thanks to the vast education system which all UK residents have easy access to through government-backed funding and loans.
In 2022, the UK government added a new policy to seek to further enhance the talent pool with its ‘High Potential Individual visa’ (or, ‘HPI visa‘) — a visa specifically for recent graduates of the worlds top universities.
3. There Are Clearly Defined Worker Protections
The UK has some of the world’s most stringent and clearly defined worker protections. This is something that you should view as a positive, however.
While regulations are designed to offer employees a great deal of protection, it simplifies compliance. It is far easier to follow a pre-defined list of clear rules and regulations than it is to try and follow ambiguous patchwork regulations that can be found in other jurisdictions.
4. It’s A Flexible Marketplace
While Brexit has been seen by many as a negative, it does come with many benefits. The UK is now completely free to establish its own rules and regulations in key industries that are tailored to its own needs. This means that there is more scope for different trade agreements between different countries and will potentially lead to increased competition and opportunities for growth across Europe.
Furthermore, as the UK continues to evolve after Brexit, it will slowly become better equipped to react quickly to big global events and market shifts than would have otherwise been possible as an EU Member State. This can be beneficial to businesses operating in the UK that have operations in other parts of the world outside of the EU.
5. A Culturally Mixed Population
The UK has a very large and expanding population relative to its small size. This means that there is a constantly growing marketplace that is culturally diverse and mixed, with a large demand for varied goods and services.
Anyone doing business in the UK will be able to benefit highly from this multiculturalism, whether that is through selling products and services to certain communities or through hiring a diverse workforce and harnessing their unique perspectives and experience.
Effectively working with the UK’s diverse population requires a thorough understanding of British culture, though, which is where a global expansion partner can come in handy.
3 Challenges of Doing Business in the UK
While the benefits of doing business in the UK far outweigh the drawbacks and challenges, it is still important to think about them. Here are three important ones:
- 1. Registering a Business
- It is very easy to incorporate a business in the UK. A limited company can be registered and set up within 48 hours for a very small fee. However, there is a huge amount of administrative work that follows this.
- Dealing with Her Majesty’s Revenue and Customs (HMRC—the UK’s tax authority), registering as a pay-as-you-earn (PAYE) employer so that you can withhold tax, and meeting other obligations all take up a great deal of time. Add on the fact that HMRC is not exactly known for providing a quality, stress-free service and you can begin to see how registering a business in the UK can be a massive headache if you are not familiar with or are unprepared for what needs to be done.
- 2. Paying Taxes
- The UK’s tax system is notorious for being one of the most thorough in the world. It is also one of the trickiest because it is made up of lots of different laws and regulations that have been passed and pieced together over time.
- The average business will spend over 100 hours per year completing their tax returns and ensuring that they are compliant with relevant tax obligations, which can involve everything from withholding employee income taxes to environmental charges and sales taxes (note, the UK currently doesn’t have ‘payroll tax’, as it is defined in US tax law).
- As an example of some of the complexities involved in UK tax rules, check out their latest rules on IR35 and off-payroll working.
- It is worth observing that there have been moves, in recent times, to reduce the complexity of the system and make it more user-friendly: See, for example, the rules relating to the tax-free trading allowance.
- 3. Different Cultural Barriers
- The UK has a unique culture, and British people often come across as very reserved and sometimes rude at first. This means that it can take some time for companies to get down to business and get on with proceedings, so to speak. Reaching agreements and decisions can also be a slow and frustrating process involving a lot of bureaucracy.
- Sometimes, business introductions are done through connected third parties and via ‘old boys’ connected networks where things like family ties and schools play an important role.
UK Labour Laws and Employment Protections
If you are still considering doing business in the UK, you need to know about key labour laws and employment protections. These are strictly enforced and there are schemes and processes that exist to catch out and heavily penalise employers who breach them.
- UK Labour Laws and Employment Protections
- If you are still considering doing business in the UK, you need to know about key labour laws and employment protections. These are strictly enforced and there are schemes and processes that exist to catch out and heavily penalise employers who breach them.
UK Working Hours
Employees in the UK cannot work more than 48 hours per week averaged over a 17-week period.
Working hours can be distributed in any way as is necessary to meet the objectives of the business so long as the worker does not work for more than 48 hours per week on average. Employees are also entitled to a minimum rest period of 11 hours between shifts.
Employees can voluntarily opt out of working hours restrictions.
UK Holiday Pay
A full-time employee (i.e., one who is contracted to work 35 hours or more per week) is legally entitled to 5.6 weeks’ paid holiday per year. This is widely known as “annual leave” and amounts to around 28 days because there are five days in a working week.
Part-time workers are also entitled to 5.6 weeks’ paid leave prorated to how often they work. For example, an employee working three days a week will be entitled to 16.8 days’ paid leave per year.
Employers can include bank holidays within this minimum 28-day entitlement. Most do not, though.
UK Sick Pay
Employees get sick. That’s just the way it is. If an employee gets sick and must take time off work with supporting evidence from a doctor, employers must pay annual sick leave as a minimum.
At the time of writing, employers must cover 28 weeks of sick pay beginning at a rate of £96.35 per week. Most employers will naturally provide more than this, usually full normal pay, however, minimum requirements must always be met.
PAYE & Employee Taxes
In the UK, employers pay employees via a system known as pay-as-you-earn (PAYE). Under this system, employers withhold employee taxes and pay them directly to HMRC annually. This eliminates the need for employees to pay their own taxes (unless they are independent contractors rather than employees).
Income tax in the UK is progressive. Every employee has a tax-free personal allowance where 0% income tax is paid on the first £12,570 (2021/22 tax year). The income tax rate then rises to 20% for every £1 earned between £12,571 and £37,700 and 40% for every £1 earned between £37,701 and £150,000. After £150,000, employees lose their personal allowance and pay 45% on every extra £1 earned. Employers also need to withhold national insurance (NI) contributions, and the Health and Social Care Levy, by law.
In addition to income tax and NI, employers may need to withhold things like pension and private healthcare contributions. You can read more about this at our Guide to Employee Benefits in the UK.
Getting Started with Your UK Expansion
There are so many more things that you need to think about if you would like to expand to and do business in the UK.
Strict laws surrounding grievances and dismissal, maternity and paternity leave, different tax rules for certain industries, and more all have their part to play, and how they apply to your business will depend on its unique circumstances and how you plan to operate.
It makes sense to partner up with a global professional employer organisation (PEO) like Horizons. Our expert consultancy, employer of record, and payroll services can provide your business with everything that it needs to begin trading in the UK and meet the minimum compliance standards.
With help from our experts, you could be trading in the UK in as little as 48 hours and could stand to save up to 82% in expansion costs.
Get in touch with our team today to find out how our UK PEO and UK Employer of Record services could help your expansion.
