How to Start a Business in the UK as a Foreigner: The Ultimate Guide

The United Kingdom encourages entrepreneurship and has a very vast economy. As entrepreneurs who want to start a business, whether you are a resident or foreigner, as long as you follow the legal procedures necessary for starting a business in the UK, you can successfully have your business established in the UK.

Understanding what is needed to start up a business as a foreigner in the UK is very important. If you fail to understand these requirements, you will end up having a complicated business registration and incorporation in the UK.

In this article, we will talk about all the information you need to know about setting up a business in the UK as a foreigner.

Types of Businesses Available in The UK for Foreigners

Before talking about starting a company in the UK, you must make sure to have proper research, understand your business activities and know which business structure will suit it best. Knowing this will help your start-up understandably and with a little ease during registration and incorporation.

Below are the business structures available in the UK even for foreigners.

1. Sole Proprietorship

In this type of business structure, you're the only one responsible for managing and coordinating all activities of the business including sales, marketing and accounts. A sole proprietor has no difference from their business as every loss and profit of the business is directly related to the sole proprietor.

As a sole proprietor, you can choose to trade with your name or give your business a separate name or brand name. In a sole proprietorship, there is no limited liability of the owner's income and a debt in the business can also lead to a debt of the sole proprietor. As a sole proprietor in the UK, you're mandated to

• File an annual self-assessment tax returns
• Pay taxes on your income
• File your annual accounts
• Register for tax with HMRC
• Register your business with a business name at Companies House
• Run your business as the only owner of the business

Even if you're starting as a sole proprietor with a small business in the UK, it is necessary to register your business with Companies House, the regulatory body for companies in the UK. Registering with Companies House will give you the legal right to trade and perform all business activities within the jurisdiction of the UK where you registered your business.

You may also wish to see this article on the advantages and disadvantages of a sole proprietorship

2. Partnership

A partnership business, unlike a sole proprietorship, is run by more than one person. These people can come together with a business idea and decide to push it. In a partnership, all partners own a part of the company and are liable for the company's profit and losses as well as the assets of the company.

In a partnership business, you must have an agreement which contains all the rules and regulations governing that partnership, how the profits and losses of the partnership are shared amongst partners as well as the liabilities, assets and ownership percentage of the partnership.

Every partner is responsible for the managing of the business and is to contribute to the day-to-day running of the business. In this form of business, there is no limited liability to the partner's income as in the sole proprietorship. The partners are responsible for the losses of the company and are to pay up the company's debts either by disposing of the company's assets or by using their income.

As a partner in a partnership business, you are to

• Contributing to selecting and concluding a name for the business
• Register the business with Companies House
• Register the business with HM Revenue and Customs (HMRC)

Also, choose a nominated partner who will be responsible for filing the partnership's accounts, tax returns and other financial information of the partnership.

You may wish to check this article on the pros and cons of business partnerships.

3. Limited Companies

Unlike in some proprietorships where the owner's income is directly connected to their business, in limited companies, there is a very big line drawn between the income, outcome and assets of the owner and that of the company. The owner is protected to an extent from the losses of the company and instead of the owner paying in terms of losses or debts, the company's assets or other financial sources are used to sort out the debts of the company.

In limited companies, true registered directors are the ones who are responsible for the running and management of the company. The directors and shareholders are appointed during the incorporation of the company and the directors are mandated by the law to foresee every activity of the company and file annual accounts and statements on behalf of the company.

In a limited company, the directors are the communication between the company and other parties including the government, Companies House and HMRC. Unlike in partnership where they are partners, in limited companies, there are shareholders. The shareholders purchase and own shares in the company. The amount of shares of the company they own determines the level of power they have in the decision-making of the company.

As a founder of a company, you must be a shareholder of your company and you can choose to be a director of your company or appoint other directors to run the company. Also, if you're the only person responsible for managing your business, you can register yourself as the only director and shareholder of your company.

A limited company must have a separate bank account, which must be differentiated from that of the founder. The company is run differently and does not have any relationship with the personal income of the founder. Although the profits will be shared as dividends according to the percentage owned by a shareholder in the company apart from the dividends, the founder cannot take the company's money.

Here is an article that tells you what it means to be a UK private limited company.

4. Limited Liability Partnership

The LLP form of business is more of a business structure between normal partnerships and limited companies. The Limited Liability Partnership unlike the limited business is owned by two partners who participate together in the business. In the LLP, some of the partners can choose to manage the company from the shadow and they are known as shadow partners.

The partners will elect a partner or more than one partner who will actively participate in the decision-making and management of the business and the other partners just manage the company from the shadows. The elected partner has the duties of filing statements, accounts and tax returns for the company.

The LLP does not have directors like the Limited Companies and so the partner that is elected will take the duties a director would take in a limited company. All accounts must be filed with Companies House, all tax returns must be filed at HMRC and all company records must be updated and kept safe at the company's registered office.

You may wish to check out this guide on Limited Liability Partnership.

Steps in Starting a Business as a Foreigner in the UK

As a foreigner in the UK seeking to start up a business, you need to be careful to avoid scams when processing your documents and always make sure to contact relevant bodies or trusted agents that are specialised in the area you're seeking help. To start up a business in the UK as a foreigner, you need to go through the processes below

1. Apply for a Visa

If you're planning on starting a business in the UK as a foreigner, you should apply for your visa on time to avoid delays in processing. If you're to start up a business, the start-up and innovator visas are the two visas for entrepreneurs. Some other visas are also available, which will be discussed later in this article.

Once your visa is approved, you can now proceed with the other processes necessary for starting up your business.

2. A Business Plan

As a foreigner and an entrepreneur in the UK, it is very important to have your business plan ready before proceeding to apply for the registration of your business. You might be needed to provide your business plan when you're registering your business and unless you have an outstanding business plan, your application might be rejected or delayed.

A business plan is to contain all the important information regarding the business start-up and also maintenance of the business after incorporation. The following are some information that should be included in a standard business plan.

• The estimated capital for the business
• The estimated running cost of the business after start-up
• The limitations the business is likely to face in the future and solutions to these limited
• The executive's position and duties in the business
• The structure of the business

The business activities should also contain some industries that the business would like to venture into during trading

Your business plan must be clear and include all the necessary details of the company. If your business plan is not standard enough and your business idea does not reach the requirements, your registration for starting up a business might be declined. So you need to come up with a good and detailed business idea and put it down in the form of a business plan.

You can also use your business plan to solicit support, find sponsors, and apply for grants or loans to fund your business if you're incapable of funding your business start-up alone.

3. Business Structure

As stated earlier, you can start up your business as a sole proprietorship business, a partnership, a limited company or a limited liability partnership. All these depend on the nature of the business you want to venture into and the presence of a business partner. If you have a business partner, it is better to go for a partnership or LLP so the business will be registered in the names of the partners and not one partner.

Apart from these forms of businesses, the Limited Companies are divided into two forms

• Limited by shares and
• Limited by guarantee

In the limited by shares, the business will issue shares to its shareholders and the dividends paid to these shareholders depend on the percentage of shares they hold in the company. Most entrepreneurs go for companies limited by shares because there are more profit companies that are limited by guarantee.

Limited by guarantee, no shares are issued and instead of shareholders, they are called guarantors. This form of business is more of a non-profit business and is mostly to help a particular people or community.

Choosing your business structure is a very important stage of starting up a business. You can choose to start up a limited company instead of a sole proprietorship to have a clear difference between the company's assets and your assets and it also helps you to monitor your company's income and outcome efficiently.

4. Company/Business Name

Your company name is a unique identity that should be owned by your company or business alone. When choosing a name, you must make sure the name has not been used by any registered company in the UK or else it will be rejected during application. Although only a few companies can register their company name they can register their name as a trademark to prevent others from trading under the same name.

If you're a sole trader, you can use your name as a business name or you can also pick another name different from your name. When choosing a company name, it is important to choose something unique, something that gives the public a glimpse into the business activities of your company and it should relate very well with the industry you're trading in.

If you're hoping to venture into other forms of business in various industries in the future, then you can choose a name that will not limit the business activities of your company. You can also choose to use a name that is not specific to any industry or particular product. But using a name that tells the public what you do is important as it can boost sales.

5. Registered Address

If you're registering a business in the UK, you will need an address. This address is where your letters and important documents will be mailed and also the address is where any authorities will come to in the case of an inspection. Your registered address is a very important component of your business and just be taken seriously.

Apart from mail and inspection, you should also locate your business where it will be easier to make sales and where your target audience resides or is close by. Locating your business in the wrong location can be hectic and will result in slow or no sales. You should perform a thorough market survey of the product or services you're offering, determine areas with high business success rates and situate your business there.

Also, if you're registering for a Limited Company, then you also need to provide the address of your directors. These addresses include the residential address, service address or a complementary address.

The residential address is the home address of the director and is always kept private in the company registers at Companies House. The service address is the address where all emails regarding your position in that company will be sent. You can use your residential address as a service address which is not safe since the service address is made public and putting your home address there might expose you to some insecurities.

If there is more than one director, you should include both the residential and service addresses of all the directors and ensure they are correct. The addresses should also be kept in the records in the company's registered address. If a director changes their address, you can request a change of location at Companies House.

6. Register Your Business at Companies House

After you have selected the important information above, you can then proceed to register your business at Companies House. You can register using an online or offline form depending on your preference and availability.

During the application, you have to provide information like

• Company's name
• Company's address
• Business activity

The rest of this information depends on the structure of the business you're starting up.

As a sole trader, you're to provide your name and your address and then you can choose to register your name as a trademark instead of a business name.

In a partnership, you're to provide information about the partners like their name, date of birth and address. Although in partnership, this information does not have to be submitted at Companies House but will be kept all together in a single document 'Agreement of Partnership'. These details can be changed at any time. A partner can be dropped as long as there is more than one partner after the partner is dropped. Once a partner is dropped, their information will be removed from the agreement of partnership and a new partner's information will be used to replace it.

In an LLP, the process is almost the same as that of a partnership.

In a Limited Company, here information to be provided at Companies House is a little bit more complex than for other business structures. You're to provide the name, date of birth, occupation, and addresses of your company's directors.

The important document for Limited Companies is the 'Articles of Association'. The article of association is more of a constitutional document for private companies. The article of association include

• The information of the director(s)
• The roles of the director(s) in the company
• The rules and regulations that must be kept by the directors and all members of the company
• Duties of other members of the company
• Process for holding an official company meeting
• The process for changing any information in the article of association

During incorporation of a limited company, you must provide an article of association or else you will not be able to apply. The article of association is very important as it serves as the code of conduct of the company.

After incorporation at Companies House, you are mandated to send in annual accounts to the companies house and also confirmation statements for Limited Companies. The confirmation statement is a statement sent to Companies House to confirm that all information published on the public register shout the company is correct without any errors or mistakes.

7. Register with HMRC

Once you have successfully incorporated your business or company, you can proceed to register with HMRC for taxes. Failure to register and pay for your taxes might result in serious sanctions which might even be severe as dissolution or closing down of the company or business and sometimes it might be additional costs.

Once you have successfully registered your business with HMRC, you can now start filing your annual tax returns. As a sole proprietor, you have to register for self-assessment and then you can file your business' annual accounts together with that of your income. This is because there is no distinct differentiation between the business income and your income as a sole proprietor.

As a limited company and partnership business or LLP, you have to file your annual tax returns separately from that of your income as an executive of the company. In a limited company, the filing of tax returns is the duty of the director and in a partnership or LLP, it is the duty of the designated partner(s).

As directors and shareholders of companies, you are also required to register for self-assessment with HMRC.

8. Abide by the Rules and Regulations of your Business Industry

Also, there might be some specific laws guiding specific types of businesses and as a business person, you're mandated to abide by these rules or else receive sanctions from governing bodies.

Research and know about these rules and make sure to keep to them to avoid any complications that might arise in the future.

Types of Visas Available to Entrepreneurs in the UK

The two types of Visas available to entrepreneurs who want to start up a business in the UK are the Innovator Visa and the Start-up Visa.

1. Innovator Visa

People who want to start a new business in the UK and your business idea has been found worthy and endorsed by an approved body, you can apply for the Innovator Visa. The eligibility criteria for this visa include

• You must at that time, have not less than £50,000 of funds to invest in the business and you must be able to prove the source of the funds.
• You must also have funds for personal use before the business starts giving off profits.
• You should be able to communicate in English at level B2 of the Common European Framework of Reference for Languages (CEFR)

Also before you can apply for extending your visa, you must be able to have at least £1,270 in your bank account for 28 days.

The Innovator Visa costs £1,021 and is valid for only three years and once you meet the requirements, you can renew your visa for another three years.

2. Start-up Visa

If you obtained an endorsement from a UK organisation or a higher education institution that assists UK entrepreneurs, you can apply for a start-up visa.

The criteria for a start-up Visa is that you must have a unique business idea and business plan.

The start-up visa cannot be renewed but only allows you to stay in the UK for two years. Once that period is over, you can then switch to another visa in the UK. The visa costs £363 or more

Form Your Company with Incorpuk Today

At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.

Conclusion

Since the UK has a very wide economy, starting a business in the UK has a high success rate. The success rate, however, depends on the efforts put into building the business by the entrepreneur. To start up a business in the UK, your visa is very important as without a visa that allows you to start a business, you can be deported back to your country or even face severe penalties.

Knowing what type of business and how to structure your business as a foreigner in the UK is very important and if you want to start up one, you should do good research and make a good business plan. Do you have any questions about How to Start a Business in the UK as a Foreigner? If yes, kindly contact one of our experts here.