As part of our “Ask the Expert” series, we are putting our specialists to the test and finding out the answers to frequently asked questions from our clients.
Ask the Expert – Ian Saunders, Company Secretarial
We are a product distribution company based in Europe and we want to know the implications of storing products in the UK after Brexit?
Client Question: “We are a product distribution company based in Europe and we want to know the implications of storing products in the UK after Brexit?”
Ian Saunders: “There are two options available for a company incorporated outside the UK, you can either register under the UK permanent establishment regulations or you can incorporate a UK subsidiary to trade through.”
Under the UK’s Corporation Taxes Act 2010/s 1141 definition, a non-resident company has domestic law permanent establishment in the UK if:
- It as a fixed place of business here through which the business of the company is wholly or partly carried on, or
- An agent acting on behalf of the company has and habitually exercises there authority to do business on behalf of the company (As long as that agent is not of independent status acting in the ordinary cause of business)
If the activities in the UK are preparatory or auxiliary in character in relation to the business as a while, then there is no permanent establishment. Some examples of activities that are deemed auxiliary are:
- The use of facilities for the purpose of storage, display or delivery of goods & merchandise belonging to the company
- The maintenance of stock, goods or merchandise belonging to the company for the purpose of storage, display, delivery or processing by another person.
So on the face of it, the storage of products in a warehouse would not necessarily create a permanent place of business/establishment in the UK.
UK Permanent Establishment
If you decide or are advised independently to set up a permanent establishment, it would be your company that is registered and involves the completion and filing of particular administration forms. As well as these forms, the proposed branch is required to file a certified copy of its charter, statutes memorandum and articles of the company (or other instruments of constitution if incorporated outside of the EU). These documents must both be certified by a notary and translated into English, if applicable.
Post incorporation, there is an obligation to file the accounts of the company annually (and not just the UK establishment) and any changes in officers, address, trade or business, share capital etc.
The registration of a permanent establishment would not create a separate legal entity and your company would be responsible for any debts of the UK establishment.
Although we are still waiting an outcome for Brexit; if you deal with the registration after 31st January 2020 and there is no agreement between the EU and the UK, then the information required for completion for countries outside the EU will likely apply to all companies. Although, this is not certain at this current stage and our assumption until we gather more information.
Your company would then have to register with the UK tax authorities (HMRC) and pay corporation tax on all profits generated from the UK branch (and not the whole company). Corporation tax rates are currently 19%. If your UK establishment’s turnover exceeds £85,000 then you would also need to register for VAT.
Registering a UK Subsidiary
Another option which may be simpler is to register as a subsidiary in the UK. This can be done electronically and either Wilder Coe, or the person incorporating for you, would simply need to supply general details for the persons who would be directors of the UK subsidiary and some details for the representative of the shareholder. There is also a requirement to notify the Persons of Significant Control for the shareholder. This is anyone owning or controlling more than 25% of the share capital or votes).
After incorporation, there are requirements to file accounts of subsidiary annually with Companies House and HMRC to confirm that no details have changed.
The incorporation of a subsidiary would create a separate legal entity and that entity alone would be responsible for its debts etc.
The rules regarding tax are very similar for a subsidiary to those detailed above for a UK permanent establishment. However, opening a bank account in the UK may be complicated if none of the Directors are UK residents. This is due to the current regulatory requirements for worldwide banks.
We have provided a general overview of the options available, however, due to individual businesses having specific requirements, we would advise having a consultation to establish the best practice for your circumstances. As Brexit has not yet been executed, we are unable to be certain how this may affect businesses in the UK and this advice can be subject to changes in legislation in the near future.
Ask the Expert – Bal Dhesi, HR
We are looking to grow our business but how do we make sure we hire the right talent?
“We experienced this challenge with a start-up business, whose company grew from only a handful of employees to over 20 staff members within a very short period. Building a team so quickly, without clear expectations or defined responsibilities, can expose a company to an unsettled workforce.
We know that finding the right candidates can be a lengthy process, and although searching for good talent wasn’t the issue here, we knew that the management team were aware that some members of the existing team were unhappy and unsettled. When this was bought to our attention, we explained the importance of having the ‘right fit’ for a role within a company. We reviewed their existing recruitment and on-boarding processes to measure their effectiveness.
I have previously discussed the importance of having accurate job descriptions and their influence during the recruitment process. Not only can a job description help define the requirements for the role, but it can also help clarify a candidate’s expectations. Therefore, we recommend that:
- The company’s values and behavioural competencies were incorporated into the job descriptions and personal specification.
- The recruitment and selection/competency-based questions were in-line with company values.
- The company developed an on-boarding and induction plan to ensure their internal processes/systems supported the new starter’s integration into the company.
After implementing these points, we saw an improvement across the firm and there were no more disgruntled employees. By ensuring that the talent hired is the ‘right fit’ in the first place contributes to the overall cohesiveness of a team. Additionally, we worked with the company to include our DISC personality profiling service and we provide on-going consultations for employee development to further support their people management strategy.”
Our back office is a mess! What can we do to have a more organised system in place for our employee administration?
“We worked with a leading executive search company with 30 employees and well-established policies and contracts of employment in place. However, this particular company lacked clear internal processes, working from disorganised files and spreadsheets everywhere as well as questionable accuracy of their holiday records. The company recognised that it needed to implement a secure and effective process for managing its employee data and invited our HR team to give guidance on improvement areas. We decided to demo an HR cloud-based system that was GDPR compliant and easy to use.
Fortunately, this company were already using our payroll outsourcing solution, so we had access to most of their employee data. Working closely with one of the Directors, we were able to easily set up and roll out the new HR system. We uploaded the relevant user guides onto the system and offered training. Luckily, there was no need for further training due to the simplicity of the platform.
The company started to reap the benefits of having their employee data easily accessible and stored securely in the cloud. They saw improvements in efficiency as well as creating greater ownership and transparency internally – the employees are now responsible for ensuring their data is kept up to date at all times. With the HR system also being used for onboarding their new starters, there is no longer the need for endless form filling and the payroll team can obtain all the necessary information they require directly.”
One of my employee’s negative behaviour is impacting the rest of my workforce, what can I do?
“The best advice I can give to an employer regarding difficult staff members is to have clear and trusted guidelines in place. Even if, as a firm, you want to be the best employer you can possibly be to your employees with the most outstanding benefits, there need to be the right policies in place for off-boarding and contract termination should you encounter any issues.
We once dealt with a situation on behalf of a client, where a new starter’s negative attitude was impacting their team. Although having passed their probation period, their behaviour remained detrimental to the company and endless, informal conversations proved to be fruitless.
The unacceptable behaviour was a massive drain on management time and energy, as well as poor employee dynamics and low morale causing suffering to the hidden costs of business. Therefore, after long consideration, a decision was made to terminate the employee’s contract.
Fortunately, we were on hand to give our recommendation for how best to handle this situation. By preparing a script to use during these termination meetings can help managers keep on the right track and remain in control should the employee become hostile. During the meeting, the line manager should outline the concerns, supply evidence to support the concerns and the reason for the decision.
The off-boarding process (draft letter, security badge and IT access) was planned in advance, so could be actioned immediately after the termination had been confirmed.
By not dealing with a situation effectively, there may be underlying repercussions. For example, on this occasion, the company didn’t realise the effect this situation had on team morale. We were able to help the company understand the importance of evaluating a situation and establishing facts to then take prompt, decisive action that’s in line with internal policies.”