When a business is looking to expand its operations into a new jurisdiction, a primary consideration is whether to operate through a branch or as a subsidiary of the parent company. If you open a branch in the UK, you will need to consider tax and compliance implications.

When an overseas company opens a branch, it operates as an extension of and on behalf of the parent company in the UK, making the directors of the parent company ultimately responsible and liable for the branch. Reporting requirements also differ for a branch compared to a subsidiary.

If you decide to set up a base of operations for your branch in the UK, you'll need to ensure you align with the UK reporting requirements:

• Registration with Companies House as a branch

• Registration with HMRC (for corporation tax, VAT, and PAYE) as well as annual reporting requirements

• Filing the consolidated financial statements of the overseas group at Companies House annually

Benefits of setting up a branch

Setting up a branch is a more complex process compared to a subsidiary. Being an extension of the parent company can also benefit business leaders in aligning the branch with the broader company goals. Whereas when it comes to subsidiaries, there can be a different level of control over the business and its employees. The cost of establishing a branch is more expensive than a subsidiary but annual compliance costs are lower.

Opening a branch instead of a subsidiary also offers a simplistic process for eventually closing or ceasing operations. Say your branch isn't drawing in your predicted success; it can be quickly closed. This can also be said of subsidiaries, except when they are insolvent, in which case, they will require a formal procedure to wind down and strike off and potentially need to appoint the help of a liquidator.

Similarly, if your branch hires employees in the UK, you will need to consider payroll taxes, social security contributions, and other employment-related taxes as you would a subsidiary.

Implications of setting up a branch

A branch does not have separate legal status; it acts in the name of the wider business. This means that you will need to consider your liability as a broader company when conducting business via the branch. There is no Limited liability in a branch like there is a company. An example of this would be if there was a legal claim or breach of contract, it would reflect back on the overseas company, which could be legally liable rather than go no further than the subsidiary.

In some cases a branch’s profits will incur a higher rate of corporation tax than an equivalent subsidiary. Since profit allocation can be rather subjective, the process can be lengthy and uncertain, complicating your financial predictions and planning.

Businesses will often prefer to partner with companies that are incorporated within their jurisdiction, since dealing with a branch of a foreign entity presents further risk. Since there is no legal entity in the UK, if the business finds itself in a contractual dispute, it will need to be dealt with internationally, making the task more expensive and complex. Opening a bank account in the UK will also be more difficult for a branch.

There are various advantages and implications when looking to set up a branch in the UK, each with its unique elements of risk and reward depending on your business priorities. Considering these implications and seeking relevant legal and financial advice is essential to help you navigate the intricacies of branching out into the UK market.

How can we help?

We tailor our services to suit your business, whether you are a fast-growing start-up, intergenerational family business, professional practice, or international group of companies. If you are looking to set up a business or expand into the UK and need to consider what regulatory requirements might apply to you, our specialist team can guide you through the process.