United Kingdom Private Companies

The United Kingdom is home to the world’s second largest financial centre and the largest in Europe with over 2.5m registered companies. Of these companies a very significant portion are controlled from overseas. UK corporations are liable to pay UK corporation tax by virtue of their incorporation (regardless of the location of their management or the source of their income). This does not prevent them also being liable for tax elsewhere. To avoid tax liabilities arising in two countries simultaneously the directors are often located in offshore centres. The current UK corporation tax rate varies between 20% and 24% depending on the size of the corporation with a planned reduction to 20% in all cases by 2015. This rate is one of the lowest of the long-standing EU members but is not one of the lowest in Europe (the lowest, Malta, for example has an effective rate of 5% corporation tax). In most cases a UK LLP will be a more appropriate vehicle than a UK company for establishing a presence in the UK since in most cases they will not be liable to the UK corporation tax.

The UK enjoys an excellent international reputation however in spite of this no due diligence documents (such as passports, proof of address etc) on the shareholders, directors or secretary is required on formation.  Nevertheless diligence may be required at other points in the company’s life, such as on the opening of a bank account. The UK has very little effective control on the majority of its companies and a huge number of companies are terminated each year in accordance with the UK’s strike off provisions for failure to comply with their filing obligations. No provision or inclination exists for pursuing the officers of struck off companies and of these struck off companies about half have never filed accounts or any other document. In light of this it can reasonably be assumed that in a large portion of cases corporation tax which was due is illegally not paid.  

UK companies can bank anywhere however if they bank in the UK there is a reporting obligation to the UK authorities. This safeguard can easily be avoided by banking elsewhere and is inadequate to ensure effective reporting on the operation of UK companies. Most UK formation agents also provide offshore banking facilities for UK companies mainly in the Caribbean, Cyprus, Channel Islands and other offshore centres.

The formation of UK companies can be done online without any paperwork in a matter of hours for negligible costs. The only requirement is an address in the UK for the registered office though many providers offer this service for nominal costs. In almost all cases the model articles of UK companies will be adequate and only very rarely will tailored articles be beneficial.

Use as Holding Companies
The UK has historically been a popular choice for holding companies. However its straightforward holding tax infrastructure has recently been overhauled making the current situation much more complicated nevertheless in most cases tax will still not be due on the receipt of dividends by UK companies though advice should be obtained in advance. There is wide anti-avoidance provisions which states that tax avoidance schemes will not benefit from the use of UK holding companies. The current situation means that UK companies are likely to be more popular as trading entities than holding companies, but neither is preferable to UK LLPs which if structured correctly will not be liable to pay UK corporation tax or any other UK tax.

Use as Trading Companies
Trading companies are obligated to pay 20% to 24% corporation tax depending on their size though as discussed above many illegally do not comply with this requirement. Where a trading entity is required in the UK a UK LLP will generally be preferable since it does not pay UK corporation if correctly structured. Trading companies may need to register for UK VAT but this will generally be in the interest of the company as it will avoid VAT leakage on the payment of foreign EU invoices. For more information please see our main article on UK accountancy.

Use as Nominee Companies
Since UK companies enjoy a positive reputation (especially compared with traditional offshore centres) they are sometimes used as nominees on behalf of offshore companies. This means they are appointed to act on behalf of the offshore company without any entitlement to the funds they control. This is an attempt to get the advantage of offshore taxation (typically 0%) with the credibility of a UK company. The scenario can be that the UK nominee receives all benefits, meets all expenses etc on behalf of an offshore company but submits dormant accounts on the basis that it has no beneficial interest in the assets which is holding (and is a bare trustee acting without any discretion). Another scenario is that the nominee company is appointed as nominee for a fee and keeps a share of profits on which it pays UK corporation tax as this is thought to add a degree of credibility to the scheme. If the nominee company is in common ownership with the offshore company or owned directly by it then anti-avoidance rules need to be considered and for this reason many providers offer the use of their existing nominee company.  Since the scheme is largely artificial it is likely to work, if at all, based on non-disclosure. If a UK presence is required then a UK LLPs will generally be preferable since it does not need to pay UK corporation tax if properly structured however the use of LLPs in tax planning is coming under increased scrutiny in the UK.

Use by UK Residents Domiciles
Given that the UK’s anti-avoidance rules are amongst the most sophisticated in the world it is not generally advisable for UK resident domiciles to use UK companies for any sort of tax advantage and if there is a connection with the UK it is beneficial to obtain advice before trading.

A UK private company must have at least one natural person as director. There is no maximum number of directors and other directors be either natural or legal persons (such as other companies). There is no requirement for directors to be UK resident. The role of the directors is to handle all matters of the day to day running of the company. Many service providers offer nominee directors who will be appointed in name only but issues a full power of attorney to an agreed third-party. The use of nominee directors means that the identity of the real managers is effectively concealed  however as a means of tax planning this is likely to be effective only based on non-disclosure.

There is no requirement for UK private companies to have a company secretary. If a UK private company chooses to appoint a company secretary it may appoint either a natural person or a legal person (such as another company). The secretary, if one is appointed, has an administrative role within the company. If there is no secretary then this role is provided by the directors. There is no requirement for the secretary to be UK resident.

UK companies must have at least one shareholder who can be either a natural or legal person (such as another company) and there is no maximum number of shareholders. Most formation agents offer the use of nominee shareholders to conceal the identity of the real shareholders (for a discussion on the pros and cons of nominee services please see our main article on UK nominees).

Share Capital
UK private companies do not need to have authorised share capital and there is minimum requirement for issued capital. This means that 100% of the company can be held through a 1 GBP share.

The requirement for UK companies to state their intended operation on formation in an objects clause is effectively removed and UK companies may be said to have unlimited objects; they may undertake any enterprises without restriction (unless there is a specific prohibition in their articles).

Company Seal
UK companies may choose whether or not to have seals.

UK companies are required to prepare and submit annual accounts which may need to be audited depending on the size of turnover and balance sheet. These accounts are public record.

If the intention is a UK presence then a UK LLP will generally be a preferable vehicle. If the intention is any EU presence then a low tax country may be preferable such as a Malta private company (paying an effective rate of 5% tax). If reputation is not a consideration then any number of offshore 0% tax companies are viable alternatives including the Isle of Man, BVI, St Kitts & Nevis etc.