NNRoad’s United Kingdom Country Guide

 

The United Kingdom (UK) is one of the leading trading powers with the fifth largest economy in the world. By the third quarter of 2019, the UK’s Gross Domestic Product (GDP) increased 0.4%. Services, particularly banking, insurance, and business services, are key drivers of British GDP growth. These advantages make the UK an ideal environment to expand into. But how do small businesses get there?

One option would be to use a Professional Organization Employer (PEO), also known as an Employer of Record (EOR). By using a PEO, you can hire an employee in the UK without having to set up an entity in the country, saving you resources that would otherwise be used for company formation. Not only will this employee have a better understanding of UK’s business practices and trends, but they can also help you learn more about the market so that you can tailor your business efforts to fit the culture.

Another option is to set up a legal entity in the UK through company formation services. Despite the UK’s exit from the European Union, the UK remains one of the top countries on Forbes’s Best Countries to Do Business in 2019 list. With low tax rates and high employment rates, the UK is home to many new businesses and entrepreneurs. Setting up a company in the UK also means you will have access to neighboring countries and an even bigger potential audience to serve once you are fully established. Keep reading as we dive deep into the unique business culture of the United Kingdom.

Big Ben Tower London

PEO Services

Hiring employees in the UK through a PEO means that you will have access to a skilled workforce of about 32 million people, the second largest workforce in all of Europe. The UK is home to four of the top ten universities in the world, Oxford, Cambridge, University College London and Imperial College London. Having such a large pool of educated and competent candidates means that your potential employees provide a job well done. By utilizing NNRoad’s PEO/EOR services, you will be able to expand into the UK market in the most cost-efficient way while mitigating legal risks.

Here is a breakdown of how NNRoad’s international PEO employment solutions work:

  • Service agreement proposal: NNRoad prepares a service proposal adapted to your business needs, including number of dispatched employees and locations.
  • Employment package definition: The client company determines the employees’ compensation package: salary, bonus, annual leave, and other details.
  • Local on-boarding procedure: NNRoad manages the legal and administrative requirements such as visa applications and statutory benefits registration to local UK bureaus.
  • Your business is ready to expand: Your dispatched employees can start to develop your business while remaining in total compliance with UK authorities.

Requirements

Below are the local policies required to help guide you when hiring employees in the UK:

Contract: An employment contract can be a “written statement of particulars,” which is for employees with contracts that last a month or more. This statement will include the main conditions of employment

Immigration requirements: Companies with employees that are not EU/EEA citizens must obtain a work permit by filing an application for the employee before the start of employment. The employee’s employment circumstance must be matched to a set category on the working visa.

Working Hours: An employee should work 48 hours a week to be considered a full-time employee. However, the average working week in the UK is between 35 and 40 hours. Employees may work longer hours a day, but the workday may not exceed 11 hours a day. Overtime can be paid through overtime payment but could also be paid in time off.

Social Security Contribution Rates: Unless exempted by a reciprocal agreement or under the EEA rules, Class 1 National Insurance Contributions are payable by both the employer and employee in respect of an employee working in the UK.

Category Letters:

Category Letter Employment Group
A All employees apart from those in groups B, C, J, H, M and Z in this table
B Married women and widows entitled to pay reduced National Insurance
C Employees over the State Pension age
H Employees who can defer National Insurance because they’re already paying it in another job
J Apprentice under 25
M Employees under 21
Z Employees under 21 who can defer National Insurance because they’re already paying it in another job

 

Employee Social Security Contribution Rates:

Category Letter £118 to £166 a week (£512 to £719 a month) £166.01 to £962 a week (£719.01 to £4,167 a month) Over £962 a week (£4,167 a month)
A 0% 12% 2%
B 0% 5.85% 2%
C N/A N/A N/A
H 0% 12% 2%
J 0% 2% 2%
M 0% 12% 2%
Z 0% 2% 2%

 

Employer Social Security Contribution Rates:

Category Letter £118 to £166 a week (£512 to £719 a month) £166.01 to £962 a week (£719.01 to £4,167 a month) Over £962 a week (£4,167 a month)
A 0% 13.8% 13.8%
B 0% 13.8% 13.8%
C 0% 13.8% 13.8%
H 0% 0% 13.8%
J 0% 13.8% 13.8%
M 0% 0% 13.8%
Z 0% 0% 13.8%

* Employers pay Class 1A and 1B National Insurance once a year on expenses and benefits they give to their employees. The rate for the tax year 2019 to 2020 is 13.8%.

Red British telephone booth

Individual Income Tax: Individual income taxes are paid annually in the UK. Most individuals in the UK pay income tax through the PAYE (Pay As You Earn System) system. An employer uses this to withhold income tax and national insurance contributions from an employee’s wages which are paid directly to HMRC (HM Revenue & Customs).

A self-assessment tax return may be required each year if an individual earned more than:

  • £1,000 from self-employment
  • £1,000 from other untaxed income, for example from tips or renting out a property

Income tax is charged at graduated rates, with higher rates of income tax applying to higher bands of income. Tax is charged on total income less certain deductions and allowances. This net amount is usually referred to as an individual’s taxable income. Non-residents are taxed at the same rates as residents, but they are not entitled to any UK personal allowances.

Personal Allowances: The personal allowance for 2019/20 is £12,500. This is the amount of income upon which no income tax is paid.

Deductions: Some types of deductions are automatic; some you must apply for. Below are some of the main deductions.

  • Annual subscriptions to certain approved professional bodies or learned societies, where the body’s activities are relevant to the duties of the employment.
  • A deduction is allowed for expenses incurred in performing the duties of an employee, such as business travel expenses (subject to meeting the detailed requirements).
  • Deductions are also allowed for employee contributions to a registered pension plan, or to a foreign pension plan that satisfies certain criteria. There are both annual and lifetime contribution limits that apply to such contributions. An additional tax charge will arise if the contribution limits are exceeded so care is required and professional advice is recommended.
  • A child tax credit has applied since April 6, 2003. This is a means-tested benefit paid directly (rather than through the tax system) to the individual mainly responsible for looking after the child or children. There are no personal allowances in respect of children, although children themselves are entitled to the standard personal allowance if they have income in their own right.

double decker red bus Britain with lights

Employee Termination Policies: There are four different types of dismissal in the UK: fair dismissal, unfair dismissal, constructive dismissal, and wrongful dismissal.

  • Fair dismissals: must have a valid reason for dismissing the employee which includes: capability, conduct, and redundancy
  • Unfair dismissals: includes an inaccurate reason for dismissal, unfair reason, failing to give warning about dismissal, and discrimination
  • Constructive dismissal: an employee resigns because an employer breached the employment contract. This could be a single serious event or a series of less serious events
  • Wrongful dismissal: An employer breaks the terms of an employee’s contract in the dismissal process, such as, dismissing someone without giving them proper notice

An employee who is dismissed by unfair or constructive dismissal grounds may take legal action against the employer.

Employees are entitled to minimum statutory notice under the Employment Rights Act (ERA) of dismissal. For employees with one month to two years’ service the statutory minimum notice period is one week. For employees with more than two years’ service statutory minimum notice is one week per completed year of service up to a maximum of 12 weeks. The contract can provide for more but not less notice. It can also provide a payment in lieu of notice (PILON) clause, which allows employers to pay employees instead of requiring them to work their notice.

Severance Pay: There is no statutory severance pay requirement in the event of non-economic dismissals.

Redundancy Pay: an employee is entitled to statutory redundancy pay if he is an employee and has been working for the current employer for 2 years or more. Redundancy pay policy:

  • half a week’s pay for each full year you were under 22
  • one week’s pay for each full year you were 22 or older, but under 41
  • one and half week’s pay for each full year you were 41 or older

The length of service is capped at 20 years.

metro train UK

Probationary Period: Probationary periods are common in the UK and typically last between three and six months. The main feature of the probationary period is that the employee will not normally be entitled to claim unfair dismissal if the employment is terminated as the employee requires two years’ service to bring such a claim.

If an employee does not successfully pass their probation period, they are still entitled to receive the correct statutory notice of termination, or contractual notice if that is higher, or payment in lieu of notice if there is a contractual clause which allows it.

Rest Days/Holidays:

  • New Year’s Day: 1 January
  • Good Friday: 30 March
  • Easter Monday: 2 April
  • Early May Bank Holiday: 7 May
  • Spring Bank Holiday: 28 May
  • Summer Bank Holiday: 27 August
  • Christmas Day: 25 December
  • Boxing Day: 26 December

Annual Leave:

A worker is legally entitled to 5.6 weeks paid holiday per year and can include bank holidays as part of statutory annual leave.

Business Etiquette in the UK

  • Tardiness is considered highly inappropriate in British society. Even the trains run on time, regardless of the weather. While the British may seem like they are always on the go, time is considered a valuable resource and they use it efficiently. For social events, this isn’t always the case. In business, be sure to arrive a few minutes early.
  • Compared to other Western cultures, the British may seem overly formal. Take note of titles and formal ways to address others unless given permission to do otherwise. Business and social structures are very hierarchical. They are also very respectful of personal space, so avoid physical touch as much as possible.
  • Cultural courtesy can mean that confrontation is avoided. People are less inclined to be direct and upfront when speaking and may lead to evasive or ironic speech in the workplace.
  • Important decisions are typically made from the top-down, so meetings may not yield a response immediately.

British flags road to palace

Company Formation

One reason why the UK is an ideal place for starting a business is that the tax system is not as complicated as other countries. Foreign companies with an office in the UK are subject to a standard 20% Corporation Tax, one of the lowest Corporation Tax rates in the G20 and highly competitive within Europe. The UK also has quite the entrepreneurial spirit. Around 590,000 new businesses started in 2017. With so many small business owners and entrepreneurs in the region, there are many opportunities to build your network and connecting with potential business partners. At NNRoad, we want to make your incorporation process as smooth as possible so you can spend more time focusing on your core business.

If you are considering establishing a company in the UK market, we recommend you think about:

  • Business scope
  • Company structure
  • Business environment
  • Tax system
  • Company name
  • Capital requirement

For more information on NNRoad’s incorporation step by step process, please see NNRoad’s article here.

Total Market Package

NNRoad offers a complete market entry solution for companies wishing to have local professional support during their market entry into the UK.

NNRoad allows you to take it at your own pace, and with us as your partner from beginning, to successful set up in the UK. NNRoad can also, support with taxes and accounting after your company is set up. This package enables you to hire employees even before your company is completely set up in the UK.

By the time your company’s formation is complete, NNRoad transfers all employment relationships to your new entity. From beginning to end, NNRoad is here to guide you on your journey to global expansion.

Whether you are a business looking to test the UK market or an entrepreneur ready to expand to the UK, NNRoad is here to pave the way to your success.

Contact us today to discuss your global strategy and how we can support you.