Global companies that expand into the United Kingdom have a unique opportunity to reach a rich and diverse customer base in a country where the ease of doing business is high. Companies based in the U.K. can reach more than 500 million consumers across Europe alone, making it a lucrative launching point for new businesses.
But despite the benefits, doing business in the U.K. also poses challenges for global businesses. For example, global businesses must understand and navigate the U.K.’s complex tax system and rising cost of living.
This guide highlights the top benefits and challenges of doing business in the U.K. Plus, find answers to frequently asked questions, and learn how to simplify business expansion into the U.K. while mitigating risk.
Doing business in the U.K. presents several benefits for global companies, but we highlight the top six below.
1. High Ease of Doing Business in the U.K.
Many companies expand to the U.K. because of the ease of doing business there. The World Bank’s most recent Doing Business report ranked the U.K. as the eighth country for ease of doing business.
Plus, the restrictions to starting a new business as a foreigner in the U.K. are relatively low compared to other developed countries in the East and West.
Companies can enter several thriving industries in the U.K., including the following:
- Information Technology
2. Highly Skilled Talent Pool in the U.K.
As home to some of the world’s oldest universities and a current workforce of more than 33 million, the U.K. has one of the largest highly skilled talent pools in Europe.
The U.K. also has a flexible market with regulations that protect employees. Rather than a hindrance, companies view these strict employee-first regulations as a benefit that clarifies U.K. employment requirements and improves employees’ livelihoods.
Labor costs in the U.K. are competitive compared to nearby countries, including France, Ireland, the Netherlands, and Germany. Still, lower employer social security contributions make it cheaper for employers to hire in the U.K., improving their bottom line.
Read also: Complete Guide to Hiring Talent in the U.K.
3. Easy Access to Regional and European Markets
Global companies that expand to the U.K. enjoy easy access to other European markets and regional marketplaces, including the following:
- England. With nearly five million businesses registered in England, there are countless industries that global companies can enter, including fintech, creative, and hospitality sectors.
- Wales. Wales’ primary industries include coal, manufacturing, and agriculture, making it an attractive market for emerging businesses.
- Scotland. Some of the top industries in Scotland include science and tech; Edinburgh is a popular locale for startups.
- Northern Ireland. Although it's the smallest of the four U.K. regions, Northern Ireland has over a thousand international companies in industries like aerospace, construction, and finance.
Doing business in the U.K. exposes businesses to these exciting and growing regions, making it an attractive island nation for expanding global companies.
4. Strong Infrastructure for Doing Business in the U.K.
The U.K. has a strong infrastructure that supports growth in all industries. Beyond that, the U.K. consistently improves its infrastructure, particularly in the following industries:
- Waste management
The U.K.’s focus on sustainable change and commitment to continuous infrastructure improvements create a solid foundation for successful new business operations.
5. Business-Friendly Enterprise Zones
The U.K. has several enterprise zones that are attractive to foreign businesses. Enterprise zones are geographical areas within the U.K. that offer incentives such as tax breaks for launching or expanding businesses.
There are currently 48 enterprise zones in the U.K. The U.K. government provides businesses in enterprise zones a business rate discount of up to 100% over a five-year period, worth up to £275,000 (USD 360,387) or Enhanced Capital Allowances for buying machinery and equipment.
These financial incentives make the U.K. an attractive location for global expansion.
6. Multicultural Population
The U.K. has a multicultural population and economy. From a global expansion perspective, a multicultural population is great for two reasons:
- Diverse goods and services. A multicultural demographic is good for business because it means there’s a large need for varied goods and services. The U.K.'s immigrant population is growing, increasing the demand for international products and services.
- Varied talent pool. The diversity of the U.K. exposes businesses to a multicultural talent pool with a wide range of skillsets, perspectives, and experiences, which positively impacts business productivity and success.
Doing business in the U.K. has its challenges, too. From its complicated tax system to its high cost of living, businesses should understand the drawbacks before expanding into the U.K.
1. Complex Tax System
The U.K.’s tax system is incredibly thorough and complex, which causes headaches for new and existing businesses.
Due to the U.K.’s complicated tax system, it’s normal for businesses to spend over 100 hours per year completing their tax returns. This hinders many companies seeking to expand into the U.K. if they don’t have the time or resources to comply with local tax law.
Employees also bear the burden of the U.K. tax system. According to Bloomberg, more than 1,180 different tax reliefs could leave U.K. employees worse off by earning more money.
2. Rising Cost of Living
The U.K. is one of the most expensive countries to live in, which also impacts the cost of doing business. According to the U.K. parliament, inflation hit a high of 8.7% in May 2023, which is higher than most countries with similar economies.
The high cost of living trickles down to small- and medium-sized enterprises (SMEs). As the cost of goods and services rises, businesses must account for that by raising their prices. In a recent survey, 82% of U.K. business owners said current cost of living harmed their success.
3. Increased Labor Shortage
There’s currently a labor shortage in the U.K., evidenced by a British Chambers of Commerce survey that found 82% of companies experienced recruiting challenges in late 2022.
Some reasons for the talent shortage include:
- Post-pandemic shift in labor supply and demand. The pandemic created a global shift in the workforce, with record job losses and significant changes in labor supply and demand. Many individuals have not returned to the workforce, creating a gap in the available talent pool.
- Workers are retiring earlier. Similar to the post-pandemic labor shift, many workers have cited early retirement as a reason for not reentering the workforce after a job loss or voluntarily quitting.
- Brexit. Fewer immigrants str moving to England after Brexit, causing a labor shortage. The Centre for European Reform found that since Brexit, there has been a shortfall of around 330,000 workers in Britain.
Finding top talent in a labor shortage is challenging, so businesses considering a move to the U.K. should reconsider their talent acquisition strategy upon expansion.
Which Areas of Business Are the Most Profitable in the U.K.?
While there are many profitable areas of business in the U.K., the biggest industries include management consulting, banking, general insurance, construction contracting, and pension funding.
Is the U.K. Good for Business?
The U.K. is traditionally a very good place to start a business or expand in terms of setup costs, compliance, and scaling. The U.K. has one of the highest ease of doing business scores in the world.
Can a Foreign Individual or Organization Start a Business in the U.K.?
Yes. Anyone can start a business in the U.K. without a current residential status. There are no added barriers to entry for a non-citizen.
While global expansion is a lucrative strategy for growing businesses, it involves complexities like entity establishment and navigating local tax and employment laws. Avoid the hurdles and set yourself up for success by partnering with an employer of record (EOR).
An EOR simplifies global expansion into the U.K. by ensuring compliance with ever-changing tax and labor laws and eliminating the need for establishing a local entity in the country.
With an EOR partner like Velocity Global by your side, you can hire a local team quickly, relocate talent easily, generate new revenue streams, and reach new customers in the U.K. while ensuring full compliance.
Discover how we helped Global Eagle, a satellite-based broadband connectivity provider, quickly and compliantly expand into new markets while supporting its remote teams.
No matter your reasons for taking your company global, Velocity Global helps you quickly and compliantly capitalize on them all. Contact us today to take the next step toward simplifying your expansion into the U.K. and beyond.