23.08.2023 line Uncategorized

United Kingdom

Foreign firms can choose from various legal structures when registering in the UK. The most common options include setting up a private limited company (Ltd), a branch office, or a representative office. Each structure has different requirements and implications, so it’s essential to choose the one that best suits the business’s needs.

1.Market overview
2.Entering the marke
3.Costs to the employer
4.Pay and taxes
5.Payroll timeline
6.Leave Policies
7.Termination Policy and severance
8.Time off during the year
9.Onboarding of employees

Market Overview:

Currency Corporate TaxVATWorkforce Size
GBP19%20%32.8 million

Entering the market:

Legal Structure: Foreign firms can choose from various legal structures when registering in the UK. The most common options include setting up a private limited company (Ltd), a branch office, or a representative office. Each structure has different requirements and implications, so it’s essential to choose the one that best suits the business’s needs.

Company Registration: Registering a company in the UK involves several steps, such as choosing a unique company name, providing details of directors and shareholders, and submitting the necessary documentation to Companies House. The process can typically be completed online, making it relatively straightforward.

Business Activities: Some business activities may require additional licenses or permits, depending on the industry. For example, certain financial services, healthcare, or food-related businesses may have specific regulatory requirements. It’s essential to ensure compliance with all relevant regulations.

Taxation: Foreign firms operating in the UK may be subject to UK taxation laws. Understanding the tax implications and fulfilling tax obligations is crucial. Seeking advice from tax professionals or accountants can help ensure compliance and optimize tax arrangements.

Employment and Visas: If the foreign firm plans to hire employees in the UK, they must comply with UK employment laws and immigration rules. Visas and work permits may be required for foreign employees, depending on their nationality and the type of work they will be undertaking.

Local Representation: Some foreign firms choose to appoint a UK-based agent or representative to handle certain administrative matters, especially if they do not have a physical presence in the UK.

Costs to the employer:

As a percentage of the employee’s salary:

Employer National Insurance Contribution13.8% (above 12,570 yearly income)
Minimum Pension scheme contribution3%
Apprenticeship levy0.5%
Pension administration costs0%-5% (depending on the pension scheme provider and tax regulations)

Total Estimated Cost = 17.3% of base salary (it can rise to even 20%)

Pay and taxes:

Minimum wage: The minimum wage can differ depending on working hours and age. For instance, employees aged 23+ and working 8 hours a day earn a minimum wage of £1,806,12 monthly or 21,673,6 yearly (as of July 2023)

Overtime: Employees are not legally entitled to any overtime pay in the UK. At the same time, an employees average pay per hour worked (including overtime) must not be below the minimum hourly rate which stands at £10,42 as of July 2023. 

Bonuses: Employees are not legally entitled to any bonuses in the UK. Nevertheless, bonuses can be awarded at the discretion of the employer and are thus taxed as bonuses at a progressive rate in accordance to the British tax regulations. 

Payroll timeline:

Payroll CycleMonthly
Payroll Cut off date20th of the month
Invoice issuance date26th of the month
Payment dateLast date of the month

Employees are to be paid by the last day of the month

Income tax: Individual income tax is progressive in the UK as per the table below:

Annual Income (Gross)Tax Rate (percentage)
Below £12,570Tax free
£50,271 – £150,00040%
Above £150,00045%

Leave Policies:

Type of LeavePolicy
Maternity LeavePregnant employees can take up to 52 weeks of leave, which includes 26 of ordinary leave and 26 weeks of additional leave. The pay is not covered by the employer but by the state in periods as follows:1-6 weeks: 90% of pre-tax average salary weeks 6-33: 90% of their average pre-tax salary or £172 weekly whichever is lowerweeks 33-52: unpaid
Paternity LeaveEligible employees are entitled to 2 weeks of paternity leave, which must be claimed in one period. During that time they will receive £172 weekly or 90% of the average pre-tax salary whichever is lower
Shared Parental LeaveAfter 2 weeks of compulsory maternity leave, parents may split 50 weeks of leave and 37 weeks of pay between them. The first 37 weeks will be paid  £172 or 90% of pre-tax salary while the remaining 13 weeks will be unpaid.
Sick LeaveThe number of sick days is unlimited. The employer pays 100% of base salary for the first 3 days, while the following days are covered by the government at  £172 per week. Sick days are paid up to 28 consecutive days, and later are unpaid.

Termination Policy and Severance: 

An employee may only be terminated for cause, unless in the probation period when he can be terminated at will. 

Termination can occur:

  • Voluntarily by the employee
  • By mutual agreement between the employer and the employee
  • By the expiration of the contract if such date is included in the employment agreement 
  • Termination during the probation period shall be based on the employee’s lack of suitability for the job
  • Termination with notice shall be objectively justified 
  • Termination without notice shall only occur if the employee is guilty of a gross breach of duty or other serious branches of his contract agreement or other regulations 

Notice: The minimum notice period before termination will vary depending on the length on service of a particular employee. Employees who have been working for less than 2 years are entitled to 1-week notice, employees who have been working for up to 12 years should receive notice according to this formula of 1-week*years of service, and employees who have been working for over 12 years, are entitled to a 3-month notice. 

Severance: Employees whose employment was terminated for breaching regulations are not entitled to any severance payments. However, employees whose contracts have been terminated as a result of redundancy not misconduct are legally entitled to severance pay as per the table below:

AgeAmount of severance payment
Below 22 years-old0.5 weeks pay per year of service
22-40 yeard-old1 week’s pay per year of service
Above 41 year-old1.5 weeks pay per year of service

Time off during the year

Paid: 28 days of paid time off are awarded to all full-time employees in the UK. 

Onboarding of employees: 

Time:1 busines day from the moment when the employee signs the Statement of Work – a document where his responsibilities are outlined.

Documents: Passport or ID, proof of required qualifications, HMRC starter checklist, P-45, and National Insurance Number 

Employment agreement: Every contract must be in English, and signed by both parties on paper.

Due to the above-mentioned characteristics of the British market, apart from standard clauses such contract must include:

  • Obligatory training and whether its paid for by the employer
  • Additional workplaces if applicable
  • SPecified working hours and whether they may include weekends and nights

More articles

employer of record

Employer of record – Poland

For conducting business activities in the territory of Poland, foreign entrepreneurs from EU member states can establish branches…

Read more
employer of record

The PIT 0 for young freelancers? THERE IS A SOLUTION FOR THAT! Just issue invoices through Bizky

Zero PIT for young freelancers? THERE IS A WAY! Simply issue invoices through Bizky. As of August 2019,…

Read more
employer of record

History and Transformation of Academic Business Incubators (AIP)

Discover how the first business incubator in Poland, after 19 years, underwent a transformation to conquer the global…

Read more