New Business Tax Rules in UK post Brexit

BREXIT: Branch v subsidiary in the UK

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With the UK leaving the EU, many European businesses are looking to establish a presence in the UK. This can be done by either establishing a branch in the UK or by incorporating a UK subsidiary.

Armstrong Watson act for many overseas businesses and believe it is important they have the right structure set up in the UK to meet their needs.

The main differences are:

Branch

  • No separate legal identity, therefore, the parent company is liable for all branch liabilities
  • Parent company must file company financial statements with the UK’s Companies House
  • Corporation tax due on activities attributable to the UK
  • Overseas company taxed on UK profits with tax relief for UK tax paid subject to local tax rule
  • Losses can be set off against other group companies and maybe available to offset against overseas company or set off against future profits of the branch
  • A branch is much easier to wind up as it is treated as ceasing when its UK trade ceases and, where assets are disposed of, UK tax will be charged on any gains on disposal

Subsidiary

Separate legal identity therefore the parent is not liable for subsidiary liabilities

The subsidiary must file company financial statements with Companies House

Corporation tax due on worldwide activities

  • Depending on local tax rules, parent company will pay tax on dividends received from subsidiary
  • Losses can either be relieved against other UK group companies or set off against future profits of the subsidiary
  • To close the subsidiary the company will need striking off/ liquidated at Companies House and any tax on the sale of shares will not be subject to tax in UK

What is better, branch or subsidiary?

This depends on each individual situation. At Armstrong Watson, we have a team of specialist overseas tax advisors, led by Corporate Tax Director Becky Bowness, who can deliver the best advice to help you make the right decision.

It is worth noting, you can initially set up a branch and if successful this can then be incorporated into a subsidiary. This can have additional tax advantages to the overseas company when it is expected start-up losses will be made in the first year as these can potentially be passed up to the overseas company.

Outsourcing your finance function

When setting up a branch or subsidiary in the UK you will need to operate a finance function to ensure you are compliant with the national tax system. Not only can we help set up a UK branch or subsidiary, but we are also here to provide a fully outsourced finance function. To help you understand the benefits of outsourcing your finance function check out our article 10 reasons to outsource your finance function.


If you are interested in learning more about setting up a branch or subsidiary in the UK, please contact Accounting Partner Grant Smith on 01228 690000 or visit our website.

Find out more abut Outsourcing

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10 Reasons to Outsource your Finance Function

  • 20th March 2021

The final date for claims is 14th October 2021. If you require our JRS team to submit your claims please send them to jrs@armstrongwatson.co.uk. For details on the changes to the scheme visit our CJRS page.