The United Kingdom is an economic powerhouse, with an immense market size, and has become a leading choice for companies that are considering expanding their businesses into international waters. Many firms are feeling uncertainty after recent news regarding the Brexit vote and subsequent discussions about the potential impact on international trade. In this interview, Stambaugh Ness’ Jennifer Nelson, CPA, Tax Group Managing Director discusses the dynamics and challenges of doing business in the U.K with BDO USA’s Managing Director, U.K. / U.S. Tax Desk, Ingrid Gardner.
When Doing Business in the United Kingdom…
First, let’s clarify matters from a geographic standpoint since there seems to be a good deal of confusion on this side of the pond. What countries make up the United Kingdom?
You’re right, and it’s important for anyone considering an expansion into the U.K. to understand the distinctions of what’s what. The United Kingdom includes the countries of England, Scotland, Wales, and Northern Ireland. Often incorrectly synonymous with the U.K. is Great Britain, which only includes England, Scotland, and Wales. To confuse matters more, the word “British”, refers to inhabitants of the United Kingdom.
Are there any distinctions from a business standpoint between the four countries of the U.K.?
While there are some differences between the countries, they are more cultural than business. The most impactful difference in the business environment is that the U.K. does not have one unified legal system. Instead, there is one system for England and Wales, a second for Scotland and a third for Northern Ireland.
Let’s talk about Brexit; it’s been the hot term this summer. What exactly is Brexit and does it impact foreign investors?
Brexit stands for “British exit” which refers to the June 23, 2016, referendum, in which British citizens voted to leave the European Union (EU). With few trade barriers, the U.K. serves as the entry market into the EU for thousands of U.S. businesses. This access is now being called into question, and if or how Brexit will affect the entry of the EU through the U.K. While some have speculated that Brexit will have a significant market impact, at this point, there are no concrete reasons to assume it will be a negative one. And in fact, others believe it may be a positive change for businesses.
What is behind the popularity of U.S. businesses expanding into the U.K. market?
Historically, the U.K. is known as a very business-friendly environment for investors. Its attraction includes an attractive tax climate, highly skilled workforce, high standard of living, and ease of securing credit and setting up a business (average of 13 days versus the European average of 32 days).
Additionally, there is the benefit of having no language barrier to overcome and very similar cultures. The proximity to the financial hub of London, along with the U.K.’s sovereignty over its currency is also a plus.
What are the first steps to expanding into the U.K.?
One of the first things you need to consider is your market entry method. You’ll need to choose the most appropriate structure to complement your business needs: from a public limited company, private limited company, partnership (including limited liability), establishing a branch or acquiring an established business. Like anything, there are pros and cons to each, particularly regarding regulatory and reporting obligations, and tax considerations.
Are there any significant differences between conducting business in the U.S. and the U.K.?
While there are some dissimilarities between the countries, they are more cultural than business. However, we are starting to see some changes in the area of taxation – for example; Northern Ireland can set its own corporation tax rate and is expected to do so (in line with Ireland’s 12.5% tax rate). The key question is what will happen post-Brexit.
To learn more about Doing Business in the U.K. view our on-demand webinar. Ingrid Gardner will take a deeper look at the benefits, challenges, and key steps towards entering this exciting international market.