Why digital companies choose to establish businesses in the United Kingdom

Choosing a business structure

The United Kingdom offers several types of ownership structures for conducting business. As of March 2024, Companies House data indicates that out of 5.56 million registered companies, nearly 93% of owners prefer a Private Limited Company, abbreviated as LTD.

The main advantages of registering an LTD include:

• Founders (shareholders) are only liable within the limits of their contribution to the share capital.
• There is no minimum requirement for the amount of share capital.
• A single individual can establish a company.
• Owners can offer their shares to investors, facilitating additional capital for company growth.
• The enterprise is subject to relatively high audit requirements, where the company must meet at least two of the following three criteria:
  – Annual turnover does not exceed £10.2 million.
  – Company assets do not exceed £5.1 million.
  – The average number of employees for the financial year does not exceed 50.
• The standard corporate tax rate is 25%. However, companies with profits below £50,000 may qualify for a 19% tax rate.
• LTDs benefit from high trust and legal protection, supported by established legal precedents due to the 5.16 million registered companies. Additionally, they have access to advantageous tax benefits.

Alongside LTDs, business owners sometimes choose the following structures:

• Limited Liability Partnership (LLP): This structure requires at least two founders accounting for approximately 1% of all companies. Each partner is taxed individually on their share of the profits. LLPs are typically chosen by those who wish to emphasize the partnership status and share responsibilities and profits among the owners, such as law firms, accounting companies, and marketing agencies.
• Public Limited Company (PLC): Representing less than 0.1% of all companies, PLCs differ from LTDs by allowing the public offering of shares. However, they require a minimum share capital of £50,000.

Specific features

In addition to the relatively straightforward process of registering a company, there are certain features to consider when conducting business in the United Kingdom:

• Visa restrictions for non-residents may complicate finding local partners, contractors, and active participation in the company’s operations.
• Opening a bank account can be challenging for those without a physical presence in the UK, a clear business structure, local employees, board members, or local contractors.
• Cryptocurrency operations are generally allowed in the UK; however, if the company or any entity within its holding group receives payments in cryptocurrency, this may trigger additional checks and mandatory audits.
• The UK’s exit from the EU in 2020 (Brexit) and the European single market means that the UK no longer falls under common agreements. This can lead to complications with customs restrictions and separate rules for trading with the EU, such as the absence of 0% VAT under the Reverse Charge mechanism.
• Access to a highly skilled workforce is facilitated by the UK’s high-quality education system and well-developed infrastructure for business growth.
• Special tax incentives and startup support programs are available, such as those for research and development (R&D), where companies engaged in innovation can benefit from significantly reduced rates.
• Strong legal stability and protection of intellectual property rights are crucial for safeguarding business interests. At the same time, the costs of hiring local tax and legal experts or engaging in legal proceedings can be several times higher than in neighboring countries.

England is an excellent destination for IT companies and startups due to its developed infrastructure, access to financing—including venture capital—and support for innovation through various programs. Additionally, the availability of a highly skilled workforce and a robust entrepreneurial support network fosters the development of new ideas and collaboration.

Conclusion

The United Kingdom can be an excellent choice for registering an IT business due to its favorable tax conditions, relatively straightforward registration process, access to global markets, and high legal stability. Investment attraction is facilitated by the LTD structure, which allows for the issuance of shares, and the established legal framework ensures confidence in the strength of investment agreements.

This jurisdiction is well-suited for companies seeking a stable environment with a robust legal system and various permitted investment mechanisms to scale their products. However, business owners should remain mindful of visa restrictions and the higher costs of maintaining company operations.