Expanding a business into the UK can provide access to new customers, commercial partners, talent and investment opportunities.
However, an overseas company entering the UK market needs to decide how it will structure its UK operations before it begins trading.
The right structure can affect:
legal liability;
UK tax exposure;
Companies House reporting;
VAT obligations;
banking and commercial arrangements;
employment responsibilities; and
the ability to relocate or sponsor overseas employees.
For many international businesses, there are three broad strategies to consider:
incorporating a UK subsidiary;
establishing a UK branch or UK establishment; or
trading into the UK directly from overseas.
Each approach has different legal, tax and commercial consequences.
1. Set Up a UK Limited Company or Subsidiary
One of the most common ways for an overseas business to establish a permanent UK presence is to incorporate a UK private limited company.
Where the overseas parent owns the UK company, it will commonly be described as a UK subsidiary.
Unlike a branch, the UK subsidiary is a separate legal entity from the overseas parent company.
What Are the Advantages of a UK Subsidiary?
Separate Legal Personality
A UK limited company has its own legal identity.
This can help separate the liabilities of the UK operation from those of the overseas parent, although the level of protection will depend on matters such as guarantees, group arrangements and the circumstances in which liabilities arise.
For businesses entering a new market, this separation is often commercially attractive.
Familiar Structure for UK Customers and Suppliers
A UK limited company is a widely recognised business structure.
Having a UK company may make it easier to:
enter into contracts with UK customers;
establish supplier relationships;
open local banking and payment arrangements;
employ UK-based staff; and
build a permanent brand presence.
Directors Do Not Have to Live in the UK
A UK private limited company must have at least one director, but that director does not have to be resident in the UK.
The company must, however, maintain an appropriate registered office address in the UK jurisdiction in which it is incorporated.
New Companies House Identity Verification Requirements
Companies House requirements have changed significantly since the original version of this article was published.
Identity verification is now a legal requirement for a number of people involved in UK companies, including directors and people with significant control.
New company registrations require the Companies House personal code for each director, and existing directors and PSCs are also subject to verification requirements.
Overseas businesses planning to incorporate in the UK should therefore factor identity verification into the incorporation process.
What Are the Tax Implications?
A UK subsidiary will normally be within the UK corporation tax regime.
For the corporation tax year beginning 1 April 2026, the main corporation tax rate is 25% for companies with profits above £250,000, while the small profits rate is 19% for companies with profits of £50,000 or less, subject to the detailed rules on associated companies and marginal relief.
Businesses may also need to consider:
VAT;
PAYE and National Insurance for employees;
transfer pricing;
withholding taxes;
customs duties;
double taxation treaties; and
group financing arrangements.
Tax advice should therefore form part of the expansion strategy rather than being considered only after the UK company begins trading.
Who Is a UK Subsidiary Best Suited To?
A UK subsidiary may be particularly appropriate where an overseas company:
expects to trade in the UK long term;
wants a distinct UK corporate identity;
intends to recruit employees locally;
expects to enter into substantial UK contracts;
wants to separate some UK liabilities from the parent company; or
plans to develop a significant customer base in the UK.
2. Establish a UK Branch
Instead of creating a new UK company, an overseas company may decide to operate through a UK branch.
Companies House generally refers to this as a UK establishment of an overseas company.
A UK establishment is not a separate legal entity from the overseas company. It forms part of the same corporate organisation.
How Is a UK Branch Different From a Subsidiary?
This distinction is important.
With a subsidiary, the UK company has its own legal personality.
With a branch, the overseas parent company itself is carrying on business through its UK establishment.
This means liabilities arising through the branch can generally expose the overseas company itself rather than being confined to a separate UK subsidiary.
Registering an Overseas Company With Companies House
An overseas company that opens a UK establishment may need to register it with Companies House.
The current registration process uses form OS IN01, and the registration fee is £124.
Companies House also now requires directors of an overseas company registered in the UK to complete applicable identity verification requirements.
Registration can require documents relating to the overseas company, including constitutional information and, where applicable, accounts and certified English translations.
Does a UK Branch Have to File Accounts?
Potentially, yes.
The old version of this article stated that no separate financial statements needed to be filed for a UK branch. That is too broad.
An overseas company with a registered UK establishment may have continuing accounting and disclosure obligations with Companies House. The precise requirements depend partly on the accounting obligations that apply to the overseas company under the law of its home jurisdiction.
Businesses should therefore not choose a branch structure on the assumption that it avoids Companies House accounting requirements.
Tax Treatment of a UK Branch
Operating through a branch can also create a UK permanent establishment for tax purposes.
A non-UK resident company carrying on a trade in the UK through a permanent establishment can be within the UK corporation tax regime in relation to profits attributable to that UK activity.
Whether a permanent establishment exists, and how profits are allocated to it, can be technically complex and may also be affected by an applicable double taxation agreement.
Professional tax advice should therefore be obtained before choosing between a branch and subsidiary.
What Are the Advantages of a UK Branch?
A branch may offer:
a direct extension of the existing overseas company;
fewer corporate layers within the group;
centralised management;
the ability to trade using the parent company’s existing identity; and
potentially simpler group-level commercial arrangements.
However, these advantages need to be balanced against the lack of legal separation between the UK operation and the overseas parent.
Who Is a UK Branch Best Suited To?
A branch may be appropriate where:
the overseas company wants direct control of the UK operation;
creating a separate subsidiary is commercially unnecessary;
the parent company is comfortable accepting direct exposure to UK liabilities; or
the business structure and applicable tax treatment make a branch preferable.
The right choice should normally be made after considering both UK and home-country legal and tax consequences.
3. Trade Directly Into the UK From Overseas
A third option is to sell goods or services to UK customers while continuing to operate primarily from overseas.
This can be attractive for businesses that want to test the UK market before committing to a physical establishment.
Examples might include:
overseas software companies selling subscriptions to UK customers;
international consultancies serving UK clients remotely;
e-commerce businesses selling goods into the UK; and
overseas manufacturers supplying UK distributors.
Do You Need a UK Company to Sell to UK Customers?
Not necessarily.
An overseas business can often enter into contracts with UK customers without first incorporating a UK subsidiary.
However, the fact that there is no UK company does not mean that there are no UK legal or tax obligations.
UK Corporation Tax and Permanent Establishment Risk
The previous article stated that, where there is no UK establishment, the overseas company will not be liable to corporation tax.
That is an oversimplification.
A non-UK resident company can become liable to UK corporation tax where, for example, it carries on a trade in the UK through a permanent establishment. UK tax can also arise in certain circumstances involving UK property and UK land.
Whether an overseas business is simply trading with the UK or is actually trading in the UK can require detailed analysis.
Relevant factors can include:
whether the company has a fixed place of business in the UK;
the activities performed by UK-based personnel;
whether contracts are habitually concluded in the UK;
the role of UK agents;
the applicable double taxation treaty; and
the commercial substance of the arrangement.
Businesses should therefore assess permanent establishment risk before assuming that remote trading eliminates UK tax exposure.
VAT Can Apply Even Without a UK Company
VAT is another major consideration.
The standard UK VAT registration threshold is currently £90,000 for UK-established businesses.
However, different rules apply to businesses based outside the UK. GOV.UK states that a business based outside the UK may be required to register for VAT regardless of turnover where it makes taxable supplies of goods or services in the UK, subject to the detailed VAT rules and exceptions.
The precise VAT treatment depends heavily on:
whether goods or services are supplied;
where the customer belongs;
whether the customer is a business or consumer;
where goods are located at the point of sale;
who imports the goods; and
the place-of-supply rules.
VAT should therefore be assessed before an overseas company starts invoicing UK customers.
When Is Direct Overseas Trading Most Suitable?
This approach may work well for a company that:
is testing UK demand;
expects a relatively limited initial sales volume;
can provide its services remotely;
uses UK distributors or commercial partners;
does not immediately need UK employees; or
wants to validate the market before committing to a branch or subsidiary.
As UK activity grows, however, the company should regularly reassess whether its tax, regulatory or commercial position has changed.
Which UK Expansion Strategy Is Best?
There is no single structure that is best for every overseas business.
A useful starting point is to consider the company’s expected level of commitment to the UK.
UK Subsidiary
A UK subsidiary may be suitable where you want:
a permanent local presence;
a separate UK legal entity;
UK employees;
significant customer contracts; or
clearer separation between the parent and UK operation.
UK Branch
A UK branch may be preferable where:
you want the overseas company itself to operate in the UK;
separate incorporation is unnecessary;
you accept that the overseas parent will be directly exposed to branch liabilities; and
the accounting and tax consequences make the structure appropriate.
Direct Overseas Trading
Trading directly from overseas may be suitable where:
you are testing the UK market;
your activity can remain predominantly offshore;
you do not yet require a substantial UK infrastructure; and
your UK permanent establishment, VAT and regulatory risks have been assessed.
What If You Need to Send Employees to the UK?
Corporate structure is only one part of an international expansion project.
An overseas company that needs to send senior employees or specialists to establish its UK operation must also consider UK immigration and sponsor licence requirements.
One relevant immigration category is the UK Expansion Worker route under Global Business Mobility.
The route is designed for overseas businesses wishing to establish a UK branch or subsidiary and allows qualifying senior managers or specialist employees to be assigned temporarily to the UK for expansion-related work. It is specifically intended for circumstances where the overseas business has not yet begun trading in the UK.
Once a UK operation is established and trading, different sponsorship routes may need to be considered.
The timing of incorporation, trading and any sponsor licence application can therefore be important.
Common Mistakes When Expanding a Business to the UK
Overseas companies frequently focus on incorporation while overlooking the wider legal framework.
Common mistakes include:
incorporating a UK company without first considering whether a branch would be more appropriate;
assuming a branch has no Companies House accounting obligations;
assuming remote trading means there can be no UK tax exposure;
overlooking VAT registration;
moving staff to the UK before considering immigration requirements;
failing to implement employment contracts and HR procedures;
overlooking data protection and consumer law;
failing to consider transfer pricing between the parent and UK operation; and
treating incorporation as the final step rather than the beginning of ongoing compliance.
Early advice can help avoid restructuring costs after the business has already begun trading.
How Templeton Legal Services Can Help
Expanding into the UK involves more than incorporating a company.
Templeton Legal Services can assist overseas businesses with UK expansion planning, corporate structures, sponsor licences, Global Business Mobility and UK Expansion Worker matters, employment requirements and related legal compliance.
If your business is planning to enter the UK market, contact our team for advice tailored to your proposed UK operations.
