Whether you are an experienced Canada-based business owner looking to expand your empire in the United Kingdom or a fresh face from Mexico starting a new entrepreneurial venture, it is essential to identify the costs of setting up an entity in the UK. 

Company incorporation for foreign entities can be a costly process involving numerous fees and the various components of starting a business.

There are several factors you should take into consideration when calculating the total cost for the incorporation of a company in the UK. This includes everything from company registration fees to paying legal and accounting costs. 

Compared to other countries, setting up an entity in the United Kingdom is not as complicated as you may think. In fact, in 2020, the UK scored 83.55 in the Ease of Doing Business Index.

In this article, we’ll explore the various costs involved in planning and budgeting during the company formation process for your UK-based entity. 

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Determining the Right Entity Type for Your UK Company  

Before diving deeper into the cost of setting up a business in the United Kingdom, let’s explore the different types of business entities available in the country. 

Understanding this will assist you in making an informed decision.You’ll be able to identify which entity you should register for and what will be the most cost-effective solution for your business based on the nature of your company. 

There are seven different types of companies in the United Kingdom, each with its own benefits and drawbacks. The private company limited by shares is the easiest way for foreign employers to establish their entity in the UK. 

Public Limited Company (PLC)

In a public limited company, the shareholder can be anyone from the public. The shareholders all have the responsibility of managing the company’s finances. However, those owning more shares have more say in the decision-making process. For example, if a member of the public holds 1% of the company shares, they don’t have much of a say in the companies financials, compared to someone who owns 50% of the shares. 

Private Company Limited by Shares (LTD)

Some form of a private limited company is the most typical form of business in the UK. 

A private company limited by shares is owned by an NGO (non-government organization) or a small number of shareholders. This type of company cannot be owned by members of the public. The financial liabilities of the company fall on the shareholders based on the percentage of the shares they hold. 

Company Limited by Guarantee

This entity is intended for businesses without shareholders, such as smaller, non-profit organizations. A group of members act as guarantors and commit to paying a nominal sum in the event that the company faces bankruptcy or other such misfortunes. According to UK law, these companies must include "limited" in their company name and is another type of UK limited company. 

Unlimited Company (Unltd)

An unlimited company is similar to a company limited by guarantee, except there is no formal restriction to the money that guarantors pay in the event of a formal liquidation. 

Limited Liability Partnership (LLP)

In this type of business entity, some or all partners have limited liability, meaning they are responsible for their misconduct and negligence. The partners in an LLP are allowed to directly manage the company without having a board of members vote. 

Community Interest Company

This category was established for companies that intend to use their assets and profits for the betterment of the community they are located in. The profits earned from this business are distributed to the community or invested back into the organization in hopes of improving the quality of their service. 

Royal Charter (RC)

An organization that falls under the royal charter category has been granted power by the monarch. This type of business entity was popular in the past but is fading away. 

The cost to set up each entity can vary depending on factors such as registration fees, legal fees, and ongoing compliance requirements.

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The Process of UK Incorporation

Once you identify the type of business entity you want to set up, you can move on to the registration process. 

Businesses in the United Kingdom must register their incorporation with the Company House. The Companies House incorporates and dissolves companies. The Companies House workload will determine how long the incorporation process takes. 

When you register your business, using the Companies House website, you will receive a ‘certificate of incorporation’, legally confirming your company exists. During this process, you will also receive a company number and date of formation. 

Next up in the registration, you must present three forms of personal information about yourself, your shareholders, or your guarantors. The following are examples of personal information: 

  • Town of birth 
  • Mother’s maiden name
  • Father’s first name 
  • Telephone number 
  • National insurance number
  • Passport number

Keep in mind that you'll need to provide important company details. This may include a registered office address, company name, banking information, and other company documents. You can usually set up a free business bank account through business banking partners. 

The cost of setting up a limited company, or any other business entity, is only £12, which you can pay with a debit or credit card. Once you’ve paid, your company will be registered within 24 hours. 

However, preparing the documents may come with additional fees, especially if you are a foreign entity looking to set up shop and hire in the UK. 

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Other Ways to Company Registration - UK 

The registration process can entirely be done online, however, other ways to set up your entity in the UK include registering by post, using an agent, or with the help of third-party software. 

If you choose to register by post, you will need to fill out the IN01 form. The cost of submitting a paper application to register as a private or public company is £40. If you are registering for an unlimited company, the cost is £20 for a paper application. The IN01 form must be printed in full size on white A4 paper before submitting. 

If you wish to set up your entity using an agent, you are highly advised to contact an agent who has completed testing with the Companies House. A list of suggested agents is provided. However, Companies House does not accept or warrant any liability for the services these agents provide.

Finally, you can also set up your UK-based entity using third-party software.  You can file your company accounts, file changes to your details, and tax return with Companies House electronically. To register for an online filing account, all applicants must fill in the online filing credit account application form and send it to the address on the form.

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Additional Expenses to Consider 

Registering your entity in the United Kingdom did not cost you an arm and a leg. However, registration fees are not the only expense you’ll have to consider.

Legal Fees

First, consider the legal fees of setting up an entity. Whether you choose to register using an agent or third-party software, it’s always beneficial to hire a solicitor to assist in understanding all the legal aspects of setting up your business. The solicitor will also ensure you have met all the legal requirements. 

That said, the cost can add up. The average fee for legal assistance in 2023 is approximately £8,963.

Consulting Fees

Whether you set up your business from scratch or expand, it’s beneficial to include consulting fees in your budget. From yearly filing fees and compliance costs to business insurance and accounting fees, an accountant or business consultant can help with it all. 

You may also need to work with company registration agents or a company formation agent to establish a separate legal entity in the UK. This is another consulting fee to consider. 

Software, Tools, and Technology

Based on the specific requirements of your business, you’ll need to invest in relevant software, machinery, and technology. From software to assist in accounting and managing finances to gadgets that will expedite the compliance process, you’ll need to budget for it all. 

It's advisable to budget for the costs of office management software, industry standards tools, and the latest devices, such as iPads and computers, to create an efficient work environment. 

Miscellaneous Costs

Lastly, you must budget for miscellaneous expenses that may arise unexpectedly. Miscellaneous expenses can include but are not limited to travel costs, printing and stationery expenses, and other unanticipated expenses. 

The Importance of Budgeting

Expenses can add up, and that's why it's more important than ever to create a realistic budget that allows you to plan for both the expected and the unexpected. Considering the costs ahead of time and leaving room for unexpected situations can ensure you are financially ready to set up your company.

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Ways to Minimize Costs when Establishing an Entity 

In most cases establishing a new business requires significant investments, however, it's possible to reduce the expenses and make the process more affordable. 

Do Your Research

Thorough research will help you understand the process of how to set up your business and what type of entity is best suited for you. When it comes to setting up your entity in a new country, there's lots to consider. Getting professional help may be the way to go. With the right help, you can explore the many benefits of doing business in the UK while saving significant costs. 

Leverage Government Support 

Another way to minimize expenses is by taking advantage of government support and incentive programs. With the various schemes and grants the UK government provides, you can receive support and finances for your business. 

Engage an EOR 

Significantly reduce the cost of setting up your business by considering outsourcing certain aspects of the initial setup. For example, if you are looking to hire in the UK, you may not need a legal entity at all. Instead, partner with an employer of record (EOR) like Borderless that can take care of the legal hiring processes while you expand your global team. 

Use Technology

Another effective way to minimize the cost of setting up your UK-based entity is by utilizing technology. By limiting the need for physical infrastructure and transitioning to a cloud-based environment, you can reduce or eliminate the cost of maintaining a physical office. 

Digital tools and software can help automate tasks, manage finances, and even assist in managing day-to-day business operations.

Consider Your Location

If you plan on setting up a physical storefront, it's beneficial to consider cities and regions where the cost of living is low. The cost of living and operating expenses can vary based on the community. With some research, you can find a business-friendly neighborhood with lower rent prices. 

Share Your Office

If you decide to have an office space, try shared offices and co-working arrangements. These options provide access to amenities without the hefty cost of leasing or renting. 

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Benefits of an Employer of Record

Save time, money, and resources when you work with an employer of record (EOR). An EOR is a third-party company that takes on all your hiring and management responsibilities. 

With the help of an EOR, you can reduce the cost of establishing your businesses and expedite the hiring process. EORs are highly skilled in onboarding employees efficiently and quickly, leaving you with time to focus on other crucial aspects of your business. 

The infrastructure of an EOR can tackle all the necessary legalities and comply with the latest local laws and regulations. An EOR hires on behalf of your company and ensures all legal requirements are met, and your company does not have to pay penalties. 

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Making Informed Decisions for Your Business Setup

While the cost of registering your UK-based company is just £12, there are many additional costs and processes to consider when setting up a business. From purchasing machinery and completing legal requirements to the cost of hiring employees, you will have to make informed decisions, at every step of the process.    

At Borderless, we help you tackle the legal aspects of hiring in 170+ countries around the world, including the UK. Speak with us and find out how you can set up your legal entity and start hiring employees from the UK in just a few minutes. 

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Disclaimer

Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.