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UK company Compliance and Reporting Obligations for Non-Residents

Ryan Patrick

• 19 min read
UK company Compliance and Reporting Obligations for Non-Residents

Establishing and managing a UK based company as a non-resident of the UK is a good opportunity, as it exposes you to one of the world's largest business economies and markets. Although it is a promising opportunity, understanding the UK corporate, tax and regulatory system as a foreigner might turn out to be a challenge. The UK government has a strict compliance system with legal and financial obligations which is essential to avoid legal penalties, financial losses and reputational damage as a business.

Non compliance with these laws and regulations can attract serious consequences, which includes the dissolution of the company by Companies House, financial penalties from HMRC and also the disqualification of a director or removal in extreme cases. Given the ever-evolving system of UK regulations, non-residents are advised to always stay informed and updated about corporate governance, tax requirements, and statutory filings to ensure the smooth operation of the business.

Below are some of the various compliance laws and regulations in the UK and best practices for compliance as a non-resident.

Incorporation and Registration Compliance for Non UK residents

To establish a company in the UK, it is essential to follow all the laws and regulations and also to fulfil all the requirements necessary for forming a company in the UK. Complying with these laws is important to ensure smooth operations, a simplified company formation process and to avoid legal sanctions.

Are Non UK residents eligible to establish a company in the UK?

There is no law in the UK restricting non-residents to opening a company in the UK. The registration of a company is similar to that of residents with a more thorough identity check to avoid fraudulent activities. There are specific compliance requirements that only apply to non-residents in the company and they should make sure to comply with it.

- Registered Office Address Requirement

A UK company must have a physical registered office address within the UK. This address must also be within the jurisdiction where the company was registered. The registered office address is the official address of the company where legal documents and correspondence are sent. Non-UK residents usually make use of a virtual office address which is a third-party address used for collecting legal documents. Some non-residents also appoint UK-based representatives who use their addresses or any other reliable address to fulfil this requirement.

- Requirements for Directions and Shareholders

Directors: a minimum of one director is required in a company, the individual must be 16 years old or above and a director can be an individual or a corporate entity whether residents or non-residents. Non residents can become directors in UK cases but they must ensure to adhere to the UK tax obligations for directors on income earned from their duties as a director in a UK based company.

Shareholders: a company must have at least one shareholder. Shareholders can also be individuals or corporate entities and a single individual can act as both the director and shareholder of a company.

Memorandum and Articles of Association

During formation, the company submits documents; the memorandum and Articles of Association. The memorandum of association is a document that contains agreement between the first shareholders of the company agreeing to create the company. The articles of association, on the other hand, is a document that contains the rules, regulations, conflict resolution process, managerial structure and allocation of power of the company. The Companies House has a draft of Articles of Association which companies can adopt, add some company-specific information or create a totally new one following structure of the draft

What are the Annual Compliance Obligations for non UK Residents?

1. Confirmation Statement (CS01)

Companies file confirmation statements annually. The confirmation statement is a document to verify the company's information such as the directors, shareholders, Persons with Significant Control (PSC) and registered address of the company are all accurate and current. The confirmation statement is filed at Companies House and must be within 14 days of the due date which typically is the anniversary of the formation of the company or the date of the last filing of the confirmation statement. Failure to comply can result in penalties from Companies House or company dissolution in severe cases.

2. Annual Accounts

All UK cases companies are mandated to prepare and file annual accounts with Companies House. The deadline for filing annual accounts for private companies is nine months after the end of the financial year. If the company fails to file this, penalties start from £150 and increase depending on the number of days/weeks delayed. Also, companies must ensure to file Company Tax Returns at HMRC outlining their taxable profits and corporation tax due.

3. Statutory Registers

All statutory registers of a company must be maintained and current. These statutory registers include:

  • Register of Directors which includes all the details of every director in the company.
  • Register of Persons with Significant Control (PSC) which contains information of persons or legal entities who have significant control over the company.
  • The Register of shareholders contains information about all the shareholders of the company and the amount of shares they own.

These registers should be made available at the registered office address of the company or a specific location for inspection.

4. Identity Verification Requirements

Recent changes in the legislation, specifically the Economic Crime and Corporate Transparency Act 2023, have introduced a mandatory identity check and verification for all directors and PSC of companies. This decision was made to improve accuracy of data and also to avoid identity fraud. Failure to comply with this new decision can lead to penalties of up to £10,000 and also potential criminal charges.

5. Anti Money Laundering (AML) Compliance.

Businesses in the financial services, legal sectors, or real estate, must adhere to the UK anti Money Laundering regulations. These regulations include conducting due diligence of customers, reporting any suspicious activity, and in other cases, registering with the HMRC for supervision. Non compliance to the AML regulations can lead to serious penalties, which can include fines and even imprisonment.

6. Beneficial Ownership Transparency

It is mandatory for companies to disclose information about individuals who own more than 25% of the company (PSC) or those who have a huge influence over the management and operation of the company. This information should be recorded in the register or Persons with Significant Control (PSC) and just always be updated and accurate to maintain transparency and compliance with the UK laws. The PSC register is maintained by the Companies House and is available to the public on Companies House registers.

7. Data Protection Compliance

All UK based companies must adhere to the General Data Protection Regulations (GDPR) when it comes to handling of personal data which includes implementing appropriate data protection policies, obtaining consent prior to data processing, and ensuring maximum security of data. Failure to comply with these regulations can lead to fines and reputational damages. It is important to note that the GDPR applies to every business that involves people located in the EU regardless of the location or jurisdiction of processing.

8. Record Keeping and Reporting

Companies have the legal obligation to keep accurate records such as details of financial transactions, assets and liabilities. These company records must be kept and maintained for a minimum period of six years.

9. Compliance with Employment Laws

If a company wants to employ UK based staff, they would be ready to comply with all employment laws in the UK which includes contracts of employment, minimum wage requirements, working hours, health and safety regulations and statutory benefits. Non compliance can result in severe legal disputes, fines and a harm to the reputation of the company.

10. Intellectual Property (IP) Protection

All UK based companies regardless of whether they are owned by a resident or a non resident must consider protecting their intellectual properties. They can protect their IP using trademarks, parents and copyrights. Companies should register with the UK Intellectual Property Office (UKIPO) to ensure that there is legal protection against infringement and unauthorized use.

Trademarks: Protected business makes, logos and branding elements.

Patents: protects and serves exclusive rights to inventions and technological advancements.

Copyrights: covers original works such as literature, music and software.

Trade Secrets: This ensures the confidentiality of business processes and proprietary information.

Failure to protect your IP can expose your business to counterfeiting, brand dilution and revenue losses. It is always advisable to make early registration of your IP.

11. Environmental Compliance

Companies might need to comply with the UK environmental laws and sustainability regulations depending on the nature of the business activities. This is usually for businesses in industries such as manufacturing, construction and energy production.

Carbon Emissions Reporting: Specific businesses are expected to track and report their greenhouse gas emissions to relevant authorities.

Pollution Prevention: Companies have to get environmental permits if they want to perform any activity that affects water, air or land quality.

Sustainable Business Practices: Compliance of businesses with the Environment Act 2021 encouraged more companies to adopt greener business models.

Failure to comply with these environmental laws can result in financial penalties, legal actions and reputational damage.

12. Financial Crime Prevention and Fraud Protection

All UK-based companies are mandated to comply with the financial crime regulations, which include those concerning fraud, robbery, and compliance with sanctions.

Bribery Act 2021: Deems giving, receiving or facilitating bribes in business operations as a criminal offence.

Proceeds of Crime Act 202: Require that businesses report suspicious transactions relating to money laundering.

Sanctions Compliance: Companies should not conduct business with individuals or legal entities that are on the UK sanctions list.

Non compliance can lead to severe legal penalties such as fines and in severe cases, imprisonment.

13. Corporate Governance Best Practices

Good corporate governance is essential for a business to grow and succeed. The UK Corporate Governance Codes are principles set out for effective leadership, transparency and accountability.

Board Responsibilities: Directors must always act in the best interest of the company and always comply with their legal duties.

Risk Management: Companies should have a laid down strategy or method for identifying and managing risks.

Internal Controls: Companies should have already established protocols and policies for fraud prevention, ethics and regulatory compliance.

Stakeholder Engagement: There should be transparency between companies, their shareholders, employees and customers.

Although these principles only apply to publicly traded companies, private companies can also choose to adopt them to ensure a high level of credibility and operational efficiency.

Dissolution Compliance

If a UK-based company owned by a non-resident decides to wind up its operations, there is a legal procedure to follow which involves:

  • Filing a DS01 form which is a formal request to Companies House to remove the company from their register.
  • Settling Outstanding Liabilities: Ensuring that all debts, in form of taxes or any other firms are paid before dissolution.
  • Notifying Creditors and Stakeholders: all relevant parties should be aware of the dissolution of the company.
  • Distribution of Assets: All remaining assets should be properly distributed before dissolution.

Consequences of Non-Compliance for non UK Residents?

If a company fails to comply with the UK corporate regulations, the following are consequences that could be faced by the business or company:

  • Fines and penalties
  • Legal actions against the company or the directors
  • Disqualification or removal of directors
  • Company dissolution
  • Reputational damages

Tax Compliance Obligations

1. Corporation Tax

As of April 2023, the United Kingdom implemented a standard rate for the taxing system. The main rate is 25% for companies that profits more than £250,000 and the small profit rate which is 19% for companies with profits that are up to £50,000.

Marginal Relief: For companies that profits between £50,000 and £250,000, they have a tapered relief available making them pay an effective tax between 19% and 25%.

Registration for Corporation Tax

It is mandatory for companies to register for corporation tax with HMRC and it just be within the first three months of the company commencing business activities, which typically includes buying, selling, advertising, employing staff or renting a property. Non-compliance to this registration can result in legal penalties.

Tax Return Deadline:

Filing: All companies must file the Corporation Tax Returns (CT600) within 12 months after the end of the accounting period

Payment: The due date for corporation Tax is nine months and a day after the end of the accounting year period. For instance, if a company's accounting period ends on 31 March then the tax payment will be due by the 1 January of the following year.

Penalties for Late Submission

Late Filing: If the corporation tax is filed late, there is an initial fine of £100 which increases as the days of delay increases reaching £200 if it's over three months late. However, if the corporation tax is delayed further, additional penalties may be attached which depend on the percentage of the unpaid tax.

Late Payment: Interest is charged in overdue tax from due to date until the day of payment.

2. Value Added Tax (VAT)

The UK threshold for registration for VAT depends on whether the company is a UK-established business or not.

UK established business: Businesses are mandated to register for VAT if their taxable turnover of income in 12 months exceeds £90,000.

Non-established business: For these businesses, there is no registration threshold. However, as a non-resident company in the company, they are required to register for a Car as long as they are making taxable income regardless of the turnover.

Registration Process

Businesses can register for VAT online through the HMRC website and the information required is typically, details about the business which includes trading activities, turnover and business bank account information of the business.

Filing Deadline:

VAT Returns: VAT returns are usually submitted four times a year but some businesses may however opt for monthly or annual returns.

Submission and Payment: VAT payment is due one calendar month and 7 days after the end of the VAT period. For instance, if a VAT period is ending on 31 March, the return and payment are due by 7 May.

Penalties for Non-Compliance

Failure to register for VAT on time can result in penalties that are typically based on the percentage of the VAT owed.

For late filing and payment, penalties and interest may be charged for late submissions or payments.

PAYE and Employee Obligations

Registration for PAYE: As a UK-based company that employs staff, it must register as an employer with HMRC before its first payday. Even if the directors are the only employee of the company, the company is to register as an employer also.

Employer Responsibilities:

Deductions: Employees are to deduct income tax and National Insurance Contributions from their employees' wages.

Employer's NICs: Employers just pay NICs on their employee's earnings that are above a specific threshold.

Payroll Filings

Real-Time Information (RTI): Ir is mandatory for all UK-based employees to submit payroll information to HMRC on or before each payday using RTI. This information includes details of the employee's pay, deductions, and any starters or leavers.

Penalties for Non-Compliance

For late reporting, penalties can be imposed even for inaccurate RTI submission.

Interests and other penalties may apply for late payment of PAYE tax and NICs.

Regulatory and Reporting Compliance for Non-UK Company Owners

As a non-resident owner of a UK company, you must adhere to the various reporting and regulatory compliance obligations created to promote transparency and prevent financial misconduct in companies. Below are the requirements:

1. Persons with Significant Control (PSC) Register

All companies must register individuals or legal entities that have significant control over the management and or decision-making of the company; these persons are called Persons with Significant Control (PSC). This enhances transparency and reduces illegal activities.

Who is a PSC:

A Person with Significant Control is any individual who meets one or more of the following criteria:

  • Holds 25% or more of the company's total shares
  • Has more than 25% of the voting rights of the company.
  • Has the power and the authority to appoint or remove a majority of the board of directors.
  • Can exercise significant influence or control over the company.
  • Controls a trust or a form that satisfies one or more of the conditions above.

Obligations of Companies:

  • Companies must identify Persons with Significant Control and thoroughly confirm their details.
  • Companies should maintain an accurate and up to date PSC register which can be accessible at the registered office address of the company or a specific alternative location.
  • Companies must file PSC information to Companies House ensuring that it is accessible.
  • Any changes made to the PSC information should be updated in the company's PSC register within 14 days of the change and must be reported to the Companies House within an additional 14 days.

Consequences of Non-Compliance

Failure to adhere to these regulations can lead to criminal charges against the company and its officers, which can lead to fines or imprisonment. Also, restrictions may be placed on the shares or voting rights of a PSC that fails to comply.

2. Anti Money Laundering (AML) Compliance

The UK has strict Anti Money Laundering (AML) regulations put into place to fight financial crimes which includes money laundering and terrorist financing. Businesses that are susceptible to these risks must ensure to implement AML measures. Below are some businesses that are at risk and are subjected to AML regulations:

  • Financial institutions such as banks or credit unions.
  • Accountancy and audit firms
  • Legal professionals who are involved in financial or real estate transactions
  • Estate agents and property brokers
  • High-value dealers that accept cash payments over a certain threshold

Key AML Obligations

  • Customer Due Diligence (CDD): Always verify the identity of clients, and the nature of the business and thoroughly assess the risk of money laundering.
  • Ongoing Monitoring: Continuously monitor the business relationships and transactions of your business to detect and report any suspicious financial activities.
  • Record Keeping: Keep and manage records if CDD checks, transactions and internal communications for a minimum of five years.
  • Report suspicious business or financial activities to the National Crime Agency (NCAA) through the Suspicious Activity Reports (SARs)
  • Ensure every staff is adequately trained to recognize and handle potential laundering activities.

Registration with Supervisory Authorities

There are certain businesses that are mandated to register with the appropriate supervisory bodies to ensure AML compliance. For example, estate agents and high-value dealers register with HMRC, while other businesses such as financial institutions register with the Financial Conduct Authority (FCA).

Consequences of Non-Compliance

Failure to comply with these regulations can result in fines, reputational damage and in severe cases prison terms fit responsible individuals. AML regulations are actively enforced by regulatory bodies such as the FCA which has recently urged businesses to promote AML regulations.

3. Economic Substance and Permanent Establishment Rules

The UK goes through the economic substance of companies in order to determine the tax residency and obligations of the company. Non-resident owners should take this into consideration to avoid unintended tax liabilities.

Economic Substance

This is a company that assesses whether a company has activities, management and decision-making processes in the UK. The following are factors responsible for the economic substance of a company:

  • Physical presence such as offices, facilities and employees in the UK.
  • Management and control typically involve the location where key decisions are made. Core income-generating activities of the company.

Permanent Establishment (PE)

A PE is referred to as a specific location of business where most of the partial of the company's operations are carried out. The following are indicators of a PE:

  • Fixed business location such as an office, or a branch of the workshop in the UK.
  • Agents who are present and operate in the UK on behalf of the company.

Implications of Having a PE: If a non-resident company in the UK is considered to have a PE in the UK, the company becomes liable to UK taxation on profits from that establishment. This also includes the company's obligations to file tax returns and pay Corporation Tax.

4. Filings to Companies House for Change in Company Details

Companies must ensure to immediately inform Companies House of changes in the company details to always maintain accuracy in public records. Below are some notifiable chances and corresponding forms:

  • Director Appointment (form AP01)
  • Director Resignation or termination (TM01)
  • Change of Registered office address (form AD01)
  • Change in PSC details ( Forms PSC01 to PSC09 depending on the type and nature of the change.
  • Allocation of New Shares (form SH01)

Compliance for Non-Resident Directors and Shareholders

As non-resident directors and or shareholders in UK-based companies, there are some legal requirements and obligations you must follow.

1. UK Residency and Tax Implications

Income Tax Obligations for Non-Resident Directors:

Non-resident directors in UK-based companies are required to pay UK Income Tax on earnings relating to their directional duties performed in the UK. Attending a single board meeting in the UK can even trigger tax liabilities due to the fact that directors are considered office holders and their remuneration for duties undertaken in the UK is taxable, regardless of their residency status.

It is important to note that as a non-resident director in the UK, the Double Taxation Agreement (DTA) does not often provide relief in these cases.

PAYE and National Insurance Contributions (NICs)

Uk-based companies are required to register and operate under the Pay As You Earn (PAYE) system withholding income tax and NICs on payments made to directors which includes non-resident directors. This legal obligation is regardless of the residency status of the director.

Non-Resident Shareholders Taxation

Dividends paid to non resident shareholders by UK based companies are not liable to UK withholding tax. However, the shareholder is native subjected to tax on these dividends in their country of residence which depends solely on the local tax laws and applicable DTAs.

2. Business Account

Challenges to Non-Resident Owners:

Although there are no specific legal restrictions against non residents creating a UK business bank account for their company, some traditional banks are often reluctant to offer accounts to non resident business owners. This reluctance often arises from concerns about fraud and the additional administrative burden of verifying foreign applicants.

Alternative Banking Solutions

To address the challenges associated with creating a bank account, non-resident company owners can consider the following alternatives:

  • Fintech companies such as Wise Business, Revolut Business, and Tide offer business accounts for international clients.
  • International business accounts with some major UK banks such as Lloyds, HSBC, Barclays, and NatWest offer international business bank accounts for non-residents as long as the business is registered with UK Companies House.

Required Documentation

Below is the required documentation for non-resident company owners to apply for a business bank account:

  • Proof of ID such as a passport
  • Proof of address such as a utility bill or bank statement
  • Company incorporation documents

It is important to note that specific requirements can vary between banks and financial institutions. Most of the alternative bank options do not require proof of address which is the most challenging document for non-residents.

3. Double Taxation Agreements (DTAs)

Purpose and Benefits: The UK's extensive network of DTAs with several countries in order to prevent double taxation of income. The aims of this agreement are:

  • Clarifying taxing rights between the UK and the individual's residence country.
  • Reduce or eliminate tax withheld on certain forms of income such as dividends, interest and royalties.
  • Provide a system for easy resolution of tax disputes.

Non-Resident Directors and Shareholders Application

Non-resident directors and shareholders should ensure to consult DTAs between the UK and their residence country to fully understand the following:

  • Potential relief or exemptions available
  • Obligations for reporting income
  • Eligibility criteria for claiming benefits.

It is always advisable for non-residents in the UK to always seek UK professional advice when dealing with taxes to avoid legal sanctions or fines.

Consequences of Non-Compliance to UK Corporate and Tax Obligations

Failure to comply with the UK's corporate and tax obligations can result in severe consequences for companies, directors and even shareholders. The following are some consequences for non-compliance in the UK:

1. Financial Penalties

Financial penalties apply to various forms of non-compliance in the UK

Late Annual Account Filing: Private companies in the UK are mandated to submit their annual accounts to Companies House within the nine months after the end of the financial year. Delay in filing the annual accounts can lead to fines starting from £150 and increases depending on the delay.

Failure to Maintain Statutory Registers: Companies are required to always keep statutory registers of the company which includes the register of directors, shareholders and PSCs and this should be available at the registered office address or a designated location for inspection.

Non-Compliance with PAYE Obligations: If a company fails to register for the PAYE system for its employees, it may be liable for underpaid taxes, NICs, interests and penalties

Senior Accounting Officer (SAO) Non-Compliance: Large companies are mandated to appoint a senior accounting officer who is responsible for overseeing accurate tax accounting. Both the officer and the company are liable to penalties of £5000 in case of a careless or deliberate failure in fulfilling any of the obligations.

2. Company Dissolution

The Companies House has the power to dissolve any company from the register if it fails to meet the statutory requirements such as:

Failure to File Annual Confirmation Statements: failure to file this statement at Companies House can lead to the strike off of the company from the Companies House register.

Failure to Submit Annual Accounts: Consistent failure to submit the company's annual accounts can result in the dissolution of the company.

Legal Implications for Directors

Directors both residents and non-residents can face legal consequences due to noncompliance:

Disqualification: If a director holds a directorship status in the UK for up to 15 years and is found guilty of misconduct or failure to fulfil the director's duties, they are liable for disqualification.

Personal Liability: In cases where a director performs a wrong trade or fraudulent activities, the director may be held personally liable for the debts of the company putting their personal finances at risk.

Tax Investigations: Tax investigations are actively conducted by HMRC.

Other consequences includes:

PAYE and NIC Compliance: Failure to adhere to the PAYE and NIC obligations, especially non-residents directors can result in significant liabilities which include backdated taxes, interests and penalties. HMRC can also recover underpaid taxes for up to 6 years if the company does not exercise reasonable care.

Permanent Establishment Risks: Non-resident companies that engage in land dealings or developments in the UK, are required to establish a permanent establishment, making them liable for UK taxes on trading profits.

Reputational Damages: Aside from financial and legal consequences, noncompliance with obligations and regulations can destroy the public image and reputation of a company.

Loss of Stakeholders Trust: Loss of confidence and trust from Investors, customers and partners due to regulatory breaches can cause reduced business opportunities.

Negative Publicity: the coverage of the media for noncompliance can damage a company's public image, brand value and customer loyalty.

Best Practices to Help Maintain Compliance

Understanding and ensuring compliance with corporate and tax laws are important, especially as a non-resident in the UK. The following are practices to help enhance compliance:

1. UK Professional Advisor: As a non-resident, exploring the UK regulations might be challenging, in cases like this, you can use the services of UK based accountants, tax advisors and legal professionals to ensure the company remains compliant with local laws and practices. These professionals provide timely services on the general filing requirements, tax obligations and regulatory changes helping to maintain compliance.

2. Implement Compliance Systems: Creating and implementing systems to monitor compliance deadlines of the company is essential. Automated reminders for tax filings, Companies House submissions and other statutory obligations can help maintain compliance.

3. Maintain Accurate and Accessible Records: Companies should always keep and maintain detailed, accurate and organized records of financial transactions, statutory registers and correspondence with regulatory bodies.

4. Stay Updated on Regulatory Changes: The regulatory system can change at any time, always stay informed with the changes. Subscribing to HMRC and Companies House and also some relevant industries is essential in keeping up to date to ensure timely information on legislative amendments.

5. Address Non Resident Directors Obligations: Non resident directors should be careful and vigilant about their UK tax and compliance obligations. According to the UK domestic legislation, NRDs are subjected to income tax on income relating to their directorship in the UK.

6. Understand Tax Obligations of Non Resident Companies: Non resident companies are required to pay corporation tax and or income tax on UK source profits. It is important to determine the company's tax residency status and understand the implications of the diverted profits tax.

7. Use Digital Tools for Compliance Management:utilizing digital tools and software designed to aid in compliance management can also simplify compliance processes such as filing, record keeping, and monitoring regulatory updates. These digital tools can provide real-time notifications for upcoming due dates and ensure that all the filings and submissions meet the standards thereby reducing the risk of errors and omissions.

8. Conduct Regular Compliance Training: Regular training for company officers such as directors, shareholders and PSCs and other members of the company such as the employees can help in keeping the team updated for new regulations and best compliance practices. Specific training should be made for Anti Money Laundering (AML) regulations, data protection laws, and corporate governance standards.

9. Develop a Plan for Crisis Management: Even when the best practices are out forward, breaches in compliance may occur and having an already planned crisis management system is essential in managing compliance crises.

10. Adapt to the Culture of Compliance: Training company members to adopt the culture of compliance is essential to maintain compliance in a company. This is encouraging ethical behaviors, transparency, and accountability at all levels.

Implementing and maintaining these practices will help non resident company owners to maintain compliance with the UK corporate and tax laws.

Conclusion

Forming a company in the UK as a non resident presents a lot of good opportunities, however it is essential to understand the corporate and tax obligations and compliance to have a smooth business operation. Complying to these laws and obligations helps to keep a good reputation of the company, avoid legal actions, penalties and even fines. It also ensures an accurate and organized company record.