Setting up a UK business as an overseas startup
An overseas startup that hires in the UK, opens an office here or starts selling to UK customers from a UK base has two legal routes. It can incorporate a UK subsidiary, which is a new UK private limited company owned by the overseas parent. Or the overseas company can register a UK establishment with Companies House, which is a branch or place of business of the overseas company itself, with no separate company.
Both routes bring UK corporation tax, and once there are staff, UK payroll and workplace pension duties. They differ in who is liable for the UK business's debts, what has to be filed publicly, and how the UK profits are worked out. A subsidiary suits a startup that plans to hire and raise money in the UK, because it is a UK company with its own accounts, contracts and bank account.
The sections below compare the two routes and then go through the set-up steps in order: Companies House, directors and identity checks, corporation tax, transfer pricing, VAT, payroll, banking and research and development relief.
What this guide covers
- A UK subsidiary or a registered UK establishment
- Directors, people with significant control and identity checks
- Corporation tax, permanent establishments and transfer pricing
- VAT, payroll, a bank account and R&D relief
Comparing a UK subsidiary with a UK establishment
A UK subsidiary
A subsidiary is a UK private company limited by shares, with the overseas parent as its shareholder. It is a separate legal person, so it signs its own contracts, employs its own staff and owns its own assets, and the parent's liability for its debts is limited to the share capital it has subscribed, unless the parent gives a guarantee. Registering a private company online costs £100 under the Companies House fees. The subsidiary files its own accounts and confirmation statement at Companies House every year, and pays UK corporation tax on its worldwide profits as a UK-resident company.
A registered UK establishment
An overseas company with a physical presence in the UK, such as a branch or place of business where it carries on business, must register that UK establishment. Under the Companies House guidance for overseas companies, it files form OS IN01 within one month of opening, with a £124 fee, a certified copy of its constitution, a certified English translation where needed, and its latest accounts if the law of its home country requires it to prepare them.
After registration, an overseas company that must publish accounts at home files those accounts at Companies House within three months of the date they are due to be disclosed there. An overseas company without that duty prepares and delivers accounts under UK rules, within 13 months of the end of its accounting reference period. Changes to the establishment or the parent are notified within 21 days. The company's name, country of incorporation and registration details must appear on UK stationery, invoices and websites.
With a UK establishment, the overseas company itself is liable for the UK business's debts, and its own accounts can end up on the UK public register. A UK establishment can suit a short project or a small sales office where the parent wants one set of accounts.
Directors and the registered office
A UK company must have at least one director who is an individual, under section 155 of the Companies Act 2006. Directors must be 16 or over and do not have to live in the UK, but the company must have a UK registered office address, as set out in the gov.uk guidance on appointing directors.
People with significant control
A UK subsidiary must report its people with significant control to Companies House. These are broadly the people who own more than 25% of the shares or voting rights, directly or through other companies. An overseas parent can only be reported in its own right if it is a relevant legal entity, which for an overseas company generally means its voting shares are traded on a regulated or specified market. A private overseas parent is looked through, and the subsidiary reports the individuals who control the parent, such as a founder holding more than 50% of its votes, as Companies House's guidance on people with significant control explains.
Identity verification at Companies House
Every director of a new UK company must verify their identity with Companies House before the company is registered, and the registration filing includes each director's personal code. A person with significant control gives their code when they are added to the register or within 14 days of being added, under the gov.uk rules on when to verify. Verification for corporate directors and for the officers of corporate people with significant control has not started yet.
For a UK establishment, the overseas company must confirm on form OS VS01 that all its directors have verified their identity by the anniversary of the establishment's opening date. A director can verify online with Companies House or through a Companies House authorised agent. Start this before the planned registration date.
Corporation tax and permanent establishments
A UK subsidiary pays corporation tax at 19% on profits up to £50,000 and 25% on profits over £250,000, with Marginal Relief between the two, under the gov.uk rates. Those limits are divided by the number of associated companies, and an overseas parent and its other subsidiaries count, so a UK company with an overseas parent and no other group companies has limits of £25,000 and £125,000. It must register for corporation tax within three months of starting business, which includes buying, selling, advertising, renting property or employing someone, under HMRC's guidance on trading and non-trading.
An overseas company with a UK establishment pays UK corporation tax on the profits of its UK permanent establishment. Under section 1141 of the Corporation Tax Act 2010, a company has a permanent establishment where it has a fixed place of business in the UK through which its business is carried on, such as an office or branch, or where a person acting for it in the UK habitually concludes contracts for it, or habitually plays the principal role in concluding them. Under section 1143, activities of only a preparatory or auxiliary character, such as storing goods or collecting information, do not create one.
The permanent establishment test also matters for a group with a UK subsidiary. If a UK employee habitually concludes contracts in the name of the overseas parent, the parent can have a UK permanent establishment of its own, and UK corporation tax on the profits attributed to it. Have UK staff sell and sign contracts in the subsidiary's name, and set out in writing which company each contract is with.
Transfer pricing
Transactions between the UK subsidiary and its parent, such as a fee for the UK company's services, a licence for software or a loan, are subject to the UK transfer pricing rules, which require them to be priced as though the companies were independent. Small and medium-sized enterprises are exempt under section 166 of the Taxation (International and Other Provisions) Act 2010.
The size test follows the EU definition set out at INTM412080, and applies to the whole group, including the overseas parent.
| Size | Staff | Turnover | Balance sheet total |
|---|
| Small | Fewer than 50 | €10 million or less | €10 million or less |
| Medium | Fewer than 250 | €50 million or less | €43 million or less |
A company must meet the staff test and either the turnover test or the balance sheet test.
The exemption does not cover transactions with a company resident in a territory whose tax treaty with the UK has no suitable non-discrimination article, under section 167. HMRC publishes the list of qualifying treaty partners, which includes the United States, India, Australia, Canada, Germany, Japan, the Netherlands and Singapore. HMRC can also direct a medium-sized enterprise to apply the rules by issuing a transfer pricing notice, under section 168. Even when the group is exempt, write intercompany agreements and set their prices on a commercial basis, because the parent's own tax authority may apply its rules to the same transactions.
VAT registration
A UK company is normally treated as established in the UK if it can make or receive supplies at its registered business address. A registered, serviced or virtual office alone is not enough, under VAT Notice 700/1. A UK-established business must register once its taxable turnover over the previous 12 months passes £90,000, or if it expects to pass £90,000 in the next 30 days alone, and can register voluntarily below that, as gov.uk explains. Voluntary registration lets a startup with set-up costs and few UK sales reclaim the VAT it pays.
A business with no UK establishment is a non-established taxable person. The £90,000 threshold does not apply to it, and it must register within 30 days of making its first taxable supply in the UK, or of first expecting to make one. An overseas company selling to UK customers before its UK subsidiary is up and running can fall under this rule. Our guide to VAT for startups covers returns and Making Tax Digital.
Payroll for UK staff
The UK company must register with HMRC as an employer before its first payday, and cannot register more than two months before it starts paying people, under the gov.uk employer registration guidance. It then runs PAYE, deducting income tax and employee National Insurance from each payment and reporting it to HMRC on or before each payday. For 2026/27, employer National Insurance is 15% on earnings above £5,000 a year, under the 2026 to 2027 rates and thresholds.
Workplace pension duties start on the day the first member of staff starts work. Staff aged 22 to State Pension age who earn at least £10,000 a year and normally work in the UK must be enrolled in a workplace pension with an employer contribution, under the gov.uk guidance for employers. Our post on your first hire and payroll covers the first payroll in more detail.
A UK bank account
A UK subsidiary needs its own UK bank account to pay staff, collect from customers and pay HMRC. UK banks check the company and the people behind it before opening an account. They normally ask for the certificate of incorporation and articles, the ownership chain up to the individuals who control the parent, identity documents for the directors and those individuals, a UK trading address, and a description of the business and where its money comes from. Gather these before applying, especially the group structure chart. Our business banking page covers the accounts we work with.
R&D relief for a UK subsidiary
A UK subsidiary can claim research and development relief on qualifying R&D it carries out and pays for. Under the merged scheme, the credit is 20% of qualifying expenditure and is taxable. A loss-making small or medium-sized company whose qualifying R&D spending is at least 30% of total expenditure, counting connected companies worldwide, can claim enhanced R&D intensive support, with an extra 86% deduction and a payable credit of up to 14.5% of the loss surrendered. The parent's spending is included in that 30% test.
Many UK subsidiaries carry out R&D under a services agreement with their parent. Under the merged scheme, R&D contracted out is generally claimed by the customer that decided the R&D should be done. HMRC's CIRD161000 lets the company doing the work claim where the customer is not acting in the course of a UK taxable trade, which is the usual position of an overseas parent with no UK presence of its own. Relief on overseas contractors and overseas externally provided workers is restricted, so R&D done by the parent's team abroad does not qualify in the UK claim. Our R&D tax credits page covers how claims are prepared.
Raising money in the UK
A UK subsidiary of an overseas company cannot issue SEIS or EIS shares, because both schemes need the issuing company to be independent of any other company, under section 185 of the Income Tax Act 2007. An overseas parent can only issue qualifying shares itself if it meets every requirement of the schemes, including a UK permanent establishment of its own, as HMRC's VCM34050 explains. A startup that wants UK angel investment with these reliefs should look at its group structure before the UK company is formed. Our SEIS and EIS page sets out the requirements.
Help setting up in the UK
We set up and run the accounts, corporation tax, VAT, payroll and R&D claims for UK subsidiaries of overseas startups. You can get a quote for the monthly accounting, and our pricing page lists our published fees. For overseas groups that want company secretarial and compliance support across the whole UK operation, our sister service uksubsidiary.com sets up and manages UK subsidiaries for foreign parent companies.
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