It is fair to say that even though the UK has a fairly light touch on business administration, there are some strict rules to follow when it comes to financial and legal matters. If you are a non-UK national with plans to start a new entrepreneurial venture in the UK, there are several financial and legal considerations to consider, including how to secure a visa, funding and investment, banking, and taxation. In this guide, we will look at the key considerations for foreign entrepreneurs starting a business, including UK business funding for entrepreneurs, UK tax considerations for new businesses, UK legal advice for entrepreneurs, and UK banking for foreign business owners, to make the journey as easy and smooth as possible.

UK business funding for entrepreneurs: how to secure investment

Many business people do not have the luxury of large amounts of startup capital to get their new venture underway. As such, securing funding is often the most immediate concern for foreign entrepreneurs entering the UK market. The good news is that the UK is extremely progressive when it comes to business funding and is world-renowned for its robust financial system, which offers many options for business investment.

Angel investment

If you can persuade an angel investor to support your new UK business enterprise, they will not only provide capital but also offer mentorship and business guidance. This type of arrangement and support can be particularly useful for entrepreneurs unfamiliar with the UK market. However, equity ownership may come at a cost.

Venture Capital

Venture capital (VC) funding is another route you may be able to consider. VC funding is particularly popular for businesses that have the potential to scale rapidly and, hence, need considerable investment. VC firms typically invest larger amounts than angel investors but expect significant returns, which means competition for VC funding is high. To get VC funding in the UK, you will need to show that you have strong growth potential and the planning and resources necessary for rapid growth.

Crowdfunding

Online platforms such as Crowdfunder and Crowdcube can be used to raise funds by selling small equity stakes to a large number of investors. Many entrepreneurs prefer this approach because it tends to be more accessible and democratic than traditional forms of investment. As such, it is perfect for overseas entrepreneurs with compelling ideas for a UK business but limited access to traditional investors.

Grants and government loans

The UK government has a range of innovation and entrepreneurship schemes, including Innovate UK, which provides grants to businesses involved in research and development (R&D).

UK Business Loans for Non-Residents: A Complete Guide

As a foreign entrepreneur seeking a business loan, it is important to understand that lenders typically require non-resident business owners to have a registered UK business or demonstrate that they plan to establish one. Timing when you apply for a UK business loan will be important. Apply too early, and you are likely to be refused on the basis of lack of presence in the UK. As such, securing a loan may be a better option when you have got your venture off the ground and proven that it is profitable.

To apply for a business loan, an address in the UK is essential, as is a UK business bank account. You will also need to provide a comprehensive business plan with clear financial projections, and you may need to provide a personal guarantee for an unsecured loan.

Unsecured business loans

Unsecured business loans do not require collateral, making them more accessible to new businesses. This means that the loan will normally have a higher interest rate to compensate the lender for the increased risk to them.

Secured business loans

Secured business loans offer more favourable terms to entrepreneurs, but they require some form of asset, such as property or business assets, as collateral.

Short-term loans

Short-term loans are ideal if you need an immediate injection of capital for your enterprise, perhaps to buy more stock or a new machine. Short-term business loans typically need to be repaid within a year, making them ideal for entrepreneurs who anticipate being able to generate revenue quickly.

Long-term loans

Long-term loans are well suited to businesses with larger funding needs. It is normally easier to secure a longer long-term loan than a short-term loan. Long-term loans are really useful for businesses purchasing property or costly specialist equipment. Bear in mind, however, that long-term loans have longer repayment periods, often stretching over several years, therefore increasing the overall cost repaid.

If you are unsure of the best ways to secure loan funding for your new business in the UK, consider engaging a local financial advisor who provides guidance based on your circumstances.

UK tax considerations for new businesses: what you need to know

There are several forms of tax to be aware of in the UK, some or all of which may apply to you:

    • Corporation Tax – this is the main tax that you are likely to pay in the UK as a registered company owner. Corporation Tax is payable on any profits that your company makes. As of 2024, Corporation Tax ranges from 19% to 25% depending on the amount of profit made.
    • Value Added Tax (VAT) – VAT applies to most goods and services, and the standard rate in the UK is 20%. You will need to charge and pay VAT if your total taxable turnover for the last 12 months exceeds £90,000, or if you expect this to be the case in the next 30 days. You can reclaim the VAT on purchases made for your business, which can help reduce your overall VAT liability. Your accountant can handle your VAT returns and ensure that you remain compliant with the rules.
    • Pay As You Earn tax (PAYE) – Your business will need to register as an employer and operate PAYE (Pay As You Earn) if you have employees. Under the PAYE scheme, employers deduct income tax and National Insurance contributions from employee wages and pay them directly to HMRC.

Reducing your business tax liabilities

There are many ways to reduce your business tax liabilities, which is why it is so important to seek professional guidance from an accountant or tax advisor who has specialist knowledge in this area.

You may be able to claim allowable expenses, such as office rent, utilities, and equipment, which can significantly reduce your taxable profits. Investment allowances such as the Annual Investment Allowance (AIA) are provided by HMRC on large capital investments (e.g. for machinery or technology) and can significantly reduce any tax owed.

Your business may be able to leverage R&D tax credits, which provide substantial tax relief if you are involved in qualifying research and development activities. In addition, setting up your business in the UK as a registered limited company, rather than operating as a sole trader, offers considerable tax advantages by allowing you to pay yourself through dividends, which are taxed at a lower rate than income tax.

 UK legal advice for entrepreneurs: how to get started

When it comes to the legalities of running a business in the UK as a non-UK national, it is important to be aware of the immigration laws in addition to the regulatory and compliance landscape here. Again, obtaining professional legal advice is key to making sure that your business complies with all relevant requirements to avoid fines, legal problems, and business interruption.

Choosing a business structure

Most foreign entrepreneurs choose to register and operate a UK-limited company limited by shares, largely due to the fact that it offers protection against personal liability and is generally more tax-efficient. Other options include operating as a sole trader or partnership. However, neither of these models offers personal protection from liability and is typically seen as less tax-efficient.

If you choose to run and operate a company in the UK, you will need to ensure that it is properly registered with Companies House. You can do this yourself online or through a company formation specialist who can handle this for you. You will need to provide Companies House with details of your directors, shareholders, and registered office address. You must adhere to all aspects of UK company law, which includes keeping up to date with your annual filing requirements.

UK immigration law

As a foreign entrepreneur, you will likely need to apply for a visa in order to enter the UK and run a business. It is important to speak to an immigration lawyer [PM1] based in the UK who can advise you on the best route for your needs and handle the application process on your behalf. Some of the immigration routes suitable for overseas business people include:

    • Self-sponsorship route – enables foreign business people to establish a business footprint in the UK, which can then sponsor you and allow you to apply for a suitable work visa. This is a particularly innovative and beneficial route because it removes the need to be sponsored by another business and provides a pathway to permanent residency.
    • Innovator Founder visa – this is a very popular option for overseas business people with an innovative, viable, and sustainable business idea. Applicants must have their idea endorsed by an endorsing body in the UK. This route can lead to permanent residency after just 3 years.

Adhering to wider UK laws

UK companies must comply with a wide range of laws and regulations, including anti-money laundering regulations (AML), employment laws, health and safety laws, and data protection laws. AML rules require businesses to put in place measures to detect and prevent money laundering, including conducting thorough customer due diligence and reporting suspicious activities.

If you have staff, you will also need to understand UK employment laws, including regulations on fair wages, working conditions, and employee rights, such as those covered by the Employment Rights Act 1996. Additionally, health and safety regulations, such as those outlined in the Health and Safety at Work Act 1974, require businesses to create a safe working environment for their employees, reducing risks of accidents and ensuring compliance with safety standards. Companies must also remain compliant at all times with data protection (GDPR) and environmental regulations to avoid penalties and legal challenges.

UK banking for foreign business owners: Setting Up a Business Account

One of the first steps that you will need to take when setting up your business is opening a UK business bank account. Most UK banks require proof of identification, such as a passport, as well as proof of your business’s registered address. You will also need a UK address for your business. You will likely need to be present in the UK before you can apply for a business bank account. With that said, some banks may allow you to open an account remotely, but these tend to be more limited as they need to adhere to AML regulations.

In summary

We hope you have found this article useful in helping you to set up and run a business in the UK as a foreign entrepreneur. In summary:

    • As a foreign business person, you may be able to secure investment through private sources such as angel investors, venture capital, or crowdfunding platforms or seek government-backed grants and loans.
    • UK business loans are available for non-residents, but the application process requires proof of a UK-based business, address, and a strong business plan.
    • Corporation Tax, VAT, and employer taxes are key considerations for new businesses. Tax reliefs such as R&D credits can help reduce liabilities.
    • It is important to seek expert legal advice to navigate the complex requirements of setting up a business in the UK.
    • You will need to register with Companies House and comply with company law.
    • Opening a UK business bank account is essential for managing your finances. Take advantage of online banking, merchant services, and business credit cards to streamline your operations.
    • The self-sponsorship route and Innovator Founder visa offer excellent ways to secure the immigration permission needed to set up a business in the UK, each with its own pros and cons.

We wish you all the best with your new business venture in the UK!

 

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