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UK Payroll Considerations to Keep in Mind Before Expanding

By June 1, 2018September 9th, 2022No Comments
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For decades, the United Kingdom has cast a long, alluring light that has attracted and continues to attract businesses from all over the world. Seemingly countless businesses have chosen to expand into the UK market—even in the wake of the Brexit vote. Indeed, the UK has fared better than some predicted; the British pound initially plummeted in the hours following the results but has since rebounded—though it still has room to improve. Still, the UK continues to boast the world’s fifth-largest economy, outpaced only by the United States., China, Japan, and Germany, placing it among the top choices for a global expansion.

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UK Entity Setup

Establishing an entity in any foreign market is rarely a simple endeavor. For those outside the UK who wish to set up an entity inside the country, they may expect the process to be particularly challenging; just establishing a business bank account in the UK can be especially difficult. It is much easier for a UK citizen to set up a bank account when establishing an entity in the UK. However, a business outside the UK may escape the most trying aspects of opening a UK bank account if its bank has a UK branch or partner relationship with a bank in the UK.

Beyond banking, setting up an entity in the UK can come with additional challenges like finding a law firm that can help you understand changes in UK employment law. Specifically, local law firms can help you make sense of compliance issues—and ensuring you become and remain compliant while operating in the UK.

Brexit Uncertainties

Though the UK is currently avoiding the worst of financial predictions made prior to the June 2016 vote and shortly after, concern undoubtedly remains over how Brexit will affect the UK economy and businesses looking to establish a presence in the country. While the pound has fared well, its relative strength may be overstated as the U.S. dollar has remained weak for some time.

Pound fluctuations, poor economic forecasts, and skepticism over whether or not the UK is the best option for establishing an entity in the wider European market could soon impact the number of businesses looking to set up an entity in the UK. When coupled with the ample upfront investment expenses (like choosing an office, negotiating and signing a lease) and high wind down costs if a business chooses to leave the UK, establishing an entity becomes much more complicated.

Hiring Contractors in the UK from Overseas

Hiring overseas talent can also come with its own set of particularly trying circumstances. Many organizations will hire contract/freelance workers to fulfill roles. These workers may save the business money in the short-term; they often work on an as-needed basis, within a fixed timeframe, or are taken on for project work. However, employers may end up paying higher costs if paying contractor daily rates over longer periods of time.

When companies enlist contract or “hired help” workers, they may run the risk of misclassification. That is, labeling a contract worker as an employee—which can come with serious fines attached. The risk for non-compliance is with HRMC rules, as the tax responsibility is with the contractor.

When a business employs a worker through its own intermediary, the worker is involved in off-payroll work. However, the worker would be considered an employee if providing their services directly; they pay Income Tax and National Insurance Contributions (NICs) differently than an employee. Those who provide services to a client via their own intermediary or hire workers who provide services via an intermediary to public sector clients should, too, consider off-payroll regulations.

Cultural and Scaling Considerations

One potential challenge employers should keep in mind when hiring contract workers is the risk of poor cultural cohesion. That is, contract workers may not feel as invested in a company knowing that they are only working with their contractor for a fixed amount of time. Additionally, full-time employees may not see contract workers as a part of the organization, leading to poor communication and/or collaboration among contract workers and employees. This can make scaling the organization much more challenging when the time comes to further expand.

International PEO to Deliver UK Payroll to Staff

Utilizing International PEO (Professional Employer Organization) to enter the UK market, manage the employment relationship, and deliver UK payroll to staff can quickly benefit a business. International PEO offers accelerated speed to market, assists with compliance with changing employment law and payroll requirements, and ability to scale. Working with Velocity Global to handle your UK payroll needs not only affords your business clarity when expanding, but can also handle employer-paid pensions, supplemental benefits, and reimbursable allowance expenses. Reach out to us today to learn more about how we can help with your UK expansion.