What do I need to know when launching a business in the UK as a US expat?

Published on January 30, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

Are there opportunities for American entrepreneurs in the UK?

Absolutely! The UK is a great place for US citizens to start a business. It’s known for its welcoming business environment that’s open to entrepreneurs from all over, including Americans.

What kind of visa do I need to start a business in the UK?

The go-to visa for expat entrepreneurs is the Tier 1 (Entrepreneur) visa. This lets you set up or take over a business in the UK. To get this visa, you usually need at least £50,000 in investment funds. But since visa rules can change, it’s a good idea to check the latest UK immigration guidelines or get advice from a professional.

Ideally, getting help from tax professionals when planning your business is a smart strategy. They can help you understand both UK and US tax laws, ensuring you’re following the rules and being tax-smart.

Do US citizens need to report UK business activities to the IRS?

Yes, they do. If you’re a US citizen or Green Card holder and own 10% or more of a UK limited company, you must file US tax returns for that company. This can get complicated, especially if other shareholders are US citizens or family members. Most non-US corporations report to the IRS using Form 5471, and not filing this form can lead to big penalties.

What's the legal process for starting a business in the UK?

Starting a business in the UK involves a few key steps:

  • Choosing a Business Structure: Whether you go for a sole trader, partnership, or limited company, each has different rules for reporting income, personal liability, and raising capital.
  • Registering the Business: You’ll need to register with Companies House, the UK’s company registrar. This means submitting the right documents and paying a fee.
  • Opening a UK Bank Account: A separate business bank account is crucial for handling your business finances.
  • Getting the Right Licenses: Depending on your business type, you might need specific licenses or permits.

While it might seem straightforward, each step has its own regulations. If you’re not familiar with UK business laws, getting professional advice is a good idea, especially for regulated sectors like healthcare and legal services.

Is taxation a major concern for US entrepreneurs in the UK?

Definitely. When you’re setting up a business in the UK as a US expat, you need to be on top of your tax game. Here’s what to keep in mind:

  • Corporate Tax: If you’re running a limited company, it’ll need to pay corporate tax on its profits.
  • VAT: Most goods and services in the UK are subject to Value-Added Tax (VAT). You’ll have to register for VAT if your business’s turnover is over £85,000.
  • Personal Tax: As a US citizen, you’re still on the hook for US taxes. The good news is the UK-US tax treaty might help you avoid double taxation.
  • National Insurance: In the UK, both employers and employees contribute to National Insurance, which funds state benefits.

It’s also a smart move to open a business bank account in the UK. It simplifies managing your business finances, tax payments, and transactions. Different banks have different requirements, so getting advice from a tax professional can help you choose the right bank for your business.

What should I know about hiring and HR in the UK?

Hiring employees in the UK involves a few key steps:

  • Job Posting: Advertise the vacancy on job boards, through recruitment agencies, or on your company’s website.
  • Interviews and Selection: Interview candidates and pick the best fit.
  • Employment Contract: Give new hires a written statement of employment terms and conditions.
  • Onboarding: Register new employees with HM Revenue and Customs (HMRC) for tax and National Insurance.

And if you’re wondering about using a nominee director, they can be a local stand-in for your business. They’re officially a director but don’t make business decisions unless you say so. This can be really helpful if you can’t be there to run things day-to-day. Just make sure you set this up properly with legal help to stay within UK laws.

Are there financial incentives for starting a business in the UK?

Yes, the UK government offers several incentives and grants that can be a big help, even for expats:

  • Start-Up Loans: These government-backed loans can kickstart or grow your business.
  • R&D Tax Credits: If your business is into research and development, you might get tax credits.
  • Local Grants: Check with local councils for small business grants in your area.

Starting a business in the UK as a US expat involves navigating a mix of tax, legal, and financial considerations. Staying informed and seeking professional advice can make the process smoother and more rewarding.

What are the best practices for managing finances in UK?

Running a business in the UK means you’ve got to be sharp with your finances. Here are some handy tips:

  • Open a UK Business Bank Account: This keeps your business money separate from your personal funds.
  • Embrace Accounting Software: Modern software is a lifesaver for tracking your income, expenses, and what you owe in taxes.
  • Consult a Tax Pro: Find someone who knows both UK and US tax laws inside out. They’re crucial for making sure you’re ticking all the tax boxes.
  • Prepare for VAT: If your business makes more than £85,000, you’ll need to register for VAT and keep up with regular VAT returns.

What legal obligations should I be aware of?

Your legal responsibilities will vary based on your business type, but here are some general ones:

  • Register Your Business: Get your business registered with Companies House and grab any licenses or permits you need.
  • Respect Employee Rights: If you’re hiring, you need to follow UK labor laws, like minimum wage, working hours, and safety standards.
  • Stay on Top of Tax Filings: Make sure you file all your tax documents on time, including corporate tax and VAT returns, if they apply.
  • Keep Good Records: Accurate business records are a must for your accounts and if you ever get audited.

Can I change my visa status while running a business in the UK?

Switching your visa status while running a business in the UK is possible, but it’s a bit of a challenge. The UK has specific visas for entrepreneurs, and you’ll need to meet certain requirements to qualify. Talking to immigration experts is important to understanding your options and what changing your visa status means.

What should I consider when sending my profits to the US?

Thinking about sending your UK business profits back to the US? There are a few things to consider:

  • You need to know how taxes work in both the UK and the US The UK-US tax treaty helps avoid double taxation, but it’s still wise to get advice from a tax expert who knows both systems.
  • Currency rates can affect how much money you end up with. A multi-currency bank account might help manage this risk.

Dealing with visa issues and moving money across borders can be tough for any expat business owner. That’s why getting advice from professionals is not just helpful, but often crucial. Immigration experts can guide you through visa processes and requirements, while a tax advisor can help you figure out your tax situation and make the most of any tax breaks or credits.