As part of the requirements of the rules a Sole Representative must set up a branch or wholly owned subsidiary of the parent company in the UK.
There are a number of factors to consider when deciding whether to operate a branch or a subsidiary.
Both entities must be registered with Companies House, be registered for PAYE, corporation tax and VAT (Where applicable).
The key factors to consider are accounting duties, taxation and legal obligations.
A branch, for example, must file accounts with Companies House for the branch as well as the overseas parent company. This can prove to be a cumbersome exercise and most businesses would prefer to file separate accounts for the parent’s company and the subsidiary. A subsidiary would only be required to file accounts for the business of the subsidiary in the UK.
From a tax perspective, a UK subsidiary would only pay taxes on profits generated by the UK subsidiary and a branch would pay taxes in the UK on the profits generated by the UK branch. In essence the same, but with different accounting requirements.
From a legal perspective, a UK subsidiary will have limited liability and does not bind the parent company into any contracts, whereas a branch is considered as one entity. Contracts entered into by the branch in the UK may be enforceable on the parent.
In most instances, a subsidiary is considered a better option
| BRANCH PROS | SUBSIDIARY PROS |
| Easier to wind up if the venture fails | Separate legal entity with limited liability that does not bind the parent company to any of its debts or liabilities |
| Any start-up losses of the UK branch might be available to the overseas parent company to set against home profits; | Only need to file accounts at Companies House for the subsidiary’s trading |
Disclaimer:
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law.
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