Registration an IT company in the UK: features and advantages

Representatives of the Ukrainian IT business increasingly need to register a company in another jurisdiction. First of all, it is connected with the need to attract investments and the desire to enter the European and international level of business. United Kingdom is one of the most prestigious and tax-attractive jurisdictions for registering companies in the IT sphere.

The official registration of the company in Britain for conducting IT business indicates the company’s compliance with high European standards and is a guarantee of its reliability.

Features of the UK for IT-business

In 2021, UK is recognized as one of the best jurisdictions for startups, which is in the top 2 according to CEOWORLD Magazine (Most Startup Friendly Countries In The World, 2021).

The country is the leader in Europe in terms of the number of registered start-ups with foreign capital. In 2021 alone, financing of the fintech sector and startups involved more than £38.9 billion, which was 65% of all state venture capital investments. First of all, this is due to the state’s support for young, developing businesses, especially fintech companies, a tax policy that is loyal to them, the absence of bureaucracy and the ability to minimize business costs.

In the UK, there are special tax regimes (Tax Treatment) to encourage investors to make investments in developing companies and startups. Such regimes help companies to obtain important investments in the early stages of creation and implementation of activities. Let’s consider the main of them.

EIS. Attracting investments in small businesses is carried out through the company’s corporate investment scheme (the enterprise investment scheme, EIS). The regime is designed to help small venture companies find investors by offering those investors tax breaks – if conditions are met, investors can claim back up to 30 percent of the value of their investment in the form of income tax credits and can sell their shares without paying capital gains tax capital.

SEIS. The seed enterprise investment scheme (SEIS) is similar to the EIS but targets even smaller investments, offering even higher tax benefits to investors to reflect the higher investment risks.

VCT. Venture capital trusts (VCTs) also encourage investment in start-ups. VCTs are companies that subscribe to the shares of other, mostly small companies, or lend to small companies, and those who invest in VCTs receive tax benefits on the disposal of their shares.

The EIS, SEIS and VCT regimes often play a very important role in helping to find and secure early stage capital and are characterized by a very active investor market.

Technological and fintech companies generally have the advantages available to startups, but they are also entitled to preferential tax regimes, in particular, the research and development (R&D) regime.

R&D. The research and development regime is designed for companies that strive to innovate in science or technology (even if they are unsuccessful), allowing them to optimize their income tax deductions, and if the company is unprofitable, it can recover these losses in exchange for a cash credit, and this, in turn, provides significant advantages for startups in their early years.

To support innovative companies, the UK Technology Strategy Board offers smart grants of £25,000 to £10 million for ambitious innovation projects (Innovate UK), funded by the winning company under the “Smart Grants” programme.

In addition to favorable special investment regimes and state support for innovation, the jurisdiction is characterized by a developed infrastructure for startups: a large number of venture capital funds making investments, a wide network of business incubators, accelerators and business parks. Business incubators and accelerators conduct a large number of training courses for newly created companies in order to enable small businesses to develop quickly in a short period of time.

Some of the world’s biggest fintech giants are based in the UK and every day there are more and more people wanting to launch new startups in the jurisdiction with investment. To search for investment, the company can pay attention to existing venture capital funds in the state, including Connect Ventures, Notion Capital, Hoxton Ventures and others.

UK immigration policy also shows the government’s interest in the influx of new technologies and new ideas for business from abroad. This is due to the desire to attract as many talented people as possible from all over the world. For this purpose, the UK government has developed special visas for young entrepreneurs who are aiming to create their own business – the Start-up visa, which gives the opportunity to start and develop their business in the UK and abroad.

Advantages of IT company registration in the UK:

• the possibility of attracting investments due to the high level of trust in the jurisdiction of investors, partners and counterparties;
• the possibility of entering the international level of doing business;
• stable political and banking system;
• high level of intellectual property protection;
• relatively low tax burden and stable taxation system;
• the existence of effective agreements on avoidance of double taxation between the UK and more than 130 countries, which makes it possible to provide services to international partners paying taxes at favorable rates;
• the liability of shareholders is limited to the amount of contribution to the declared authorized capital of the company;
• the company’s shareholder and director can be one and the same person (perhaps a citizen of Ukraine), as the legislation of the jurisdiction does not impose requirements for a resident director;
• minimization of company maintenance and service costs;
• the possibility of opening a company account in any international payment system;
• the possibility of opening and managing the company remotely.

Taxation of IT-business in the UK

Regarding the tax burden for a UK registered IT company as of 2022, the overall corporate tax rate is 19%.

The rate of corporation tax will increase from 1^st April of 2023 to 25% for companies with profits over £250,000. For companies with profits of less than £50,000, the rate will continue to be 19%. Companies with profits between £50,000 and £250,000 will pay tax at a basic rate of 25%, but will be entitled to marginal relief, depending on the amount of profit and the type of activity, which will allow such companies to pay tax at a rate between 19-25%.

The general VAT rate is 20%, however, VAT is not charged if the company derives profit from the provision of services outside the jurisdiction. A reduced rate of 5% or 0% applies to certain goods/services.

VAT registration and a VAT-number are mandatory if the company provides services within the jurisdiction and if the company’s annual turnover exceeds £85,000.

In addition, a tax is charged when providing services using online services – digital service tax in the amount of 2%.

Therefore, the UK, as a jurisdiction with a stable tax system, provides opportunities for the use of special tax regimes for investors – EIS, SEIS and VCT, which enables start-ups and small businesses to receive investments for development already at the beginning of their existence. Innovative fintech companies and startups that can take advantage of the special R&D tax regime and receive grants for their innovative projects are no exception.

The legislation of the United Kingdom clearly regulates the procedures for registering the companys in a jurisdiction, conducting business and preparing reports. All processes are maximally simplified and do not involve excessive bureaucracy. In addition, the state actively supports and creates all conditions for the development of young businesses.

To register an IT business in the UK, we suggest contacting our company’s specialists, who will help minimize possible risks and successfully relocate the business to the jurisdiction. We will also help with the selection of the organizational and legal form of the future company, professional preparation of documents for registration, selection of a bank or payment system for opening accounts, and provide qualified assistance in all other matters related to the company’s activities.

Considering all the features and advantages of the United Kingdom, the jurisdiction can be safely considered as one of the best options for setting up a company and running an IT business. Registering a company in the UK will have a positive impact on the company’s image and increase customer confidence in its services and products, which in turn contributes to expanding the scale of doing business at the international level.