Overview
The UK has well-developed sales and distribution channels, ranging from wholly owned subsidiaries of foreign manufacturers to independent trading companies that buy and sell on their own account. Between these two extremes are independent resellers, sales agents, and stocking distributors who have contractual relationships with their suppliers. The selection of an appropriate marketing organization depends largely on the nature of the goods and services involved. Increasing international e-commerce has contributed to the growth of local fulfillment and delivery/return services.
Using an Agent to Sell U.S. Products and Services
Most U.S. exporters to the UK sell their products via distributors, who purchase goods directly from the manufacturer with the intent of reselling them to third parties. Distributors position products and brands in the market through advertising and promotion and assist with after-sales service, which is increasingly important for UK customers and contributes to a positive image of U.S. firms doing business in the UK. Depending on the sector, one distributor can cover the entire UK market, although in certain cases U.S. companies may wish to appoint separate distributors to cover selected regions, as well as covering Scotland, Wales, and Northern Ireland. Depending on the distributor’s market coverage, U.S. exporters may also benefit from access to territories beyond the UK. Sales agents are used less commonly in the UK as they tend to be small, one-person operations and may offer only limited geographic sales coverage. Sales agents might be appropriate for equipment or services that require specific technical expertise. Note that the law covering agents is different from the United States. When deciding on the optimal form of representation, U.S. exporters should consider pricing, distribution network, operational expenses, and after-sales service.
Dispute Resolution
Although there are instances that specifically require the use of a UK lawyer (barrister), contracts and agreements should be vetted by a competent attorney or firm conversant with UK Law. While contract coverage is often similar, specific clauses and language can be considerably different from that used in the United States. Standard American contracts should not be used, as they are mostly unenforceable under UK law. Many U.S. law firms have either established their own UK offices or have links with local practices and are often the most convenient and practical sources of legal advice for American companies. The U.S. Embassy Commercial Service team in London can provide lists of local law firms, including those with U.S. links, upon request.
Establishing an Office
There are several steps to consider when establishing a local office in the United Kingdom. The process is generally straightforward and can be achieved in a relatively short time.
The steps to consider are:
- Decide on legal structure. Your commercial aims will determine the type of operation you need to establish and help define your legal and tax status. How: There are two options: a UK private limited company, known as a subsidiary (separate legal entity), or a UK branch of your overseas company, known as a UK establishment (no legal identity distinct from the parent company).
- Register at Companies House. Under the Companies Act, an overseas business in the UK must register a UK establishment once it has some degree of physical presence in the UK (such as a place of business or branch). You can only make immigration applications for inter-group transfers (Tier 2) if you have set up your UK entity as either an establishment or subsidiary. Furthermore, you may not buy, sell, or transfer property or land without registration. How: You can register online, by post, by an agent or third-party software. You will need at least 3 pieces of personal information about yourself and your shareholders or guarantors. The cost is £20 (~$25). A professional advisor may also undertake this for you. Note that the process may differ in Scotland, Wales, and Northern Ireland.
- See the UK Government guidance on registering for an overseas business for more information (www.gov.uk/register-as-an-overseas-company). Note that you may need to register as a part of the Foreign Influence Registration Scheme (FIRS). Timescale: 1 day.
- Apply for visas. If you plan to transfer a non-European employee from an overseas office to set up and run your new UK operation, that person should apply for a sole representative visa before you start trading in the UK. Sole representative visas are usually granted for an initial period of three years. How: You must apply online for a Representative of an Overseas Business visa. A Representative of an Overseas Business visa costs £625 (~$800). You will need to have your fingerprints and photograph taken at a visa application center as part of the application. You will also need to submit supporting documentation. You may be able to get your visa faster or gain access to other services depending on the country you are in. Check with your visa application center. Timescale: 3 weeks.
- Set up business bank accounts. If you are intending to trade in the UK, then a UK bank account will be needed. Not only does it give your business credibility in the UK, but if you have numerous transactions, it will be cheaper to handle these locally rather than through overseas bank transfers, which are invariably costly. In addition, should you need to be VAT registered, having a UK bank account accelerates the process. How: When setting up the business bank account, you will need to bring along the following: Business customer application form, Mandate for companies registered under the Companies Act, Registration of the company, identification and verification of address, company structure chart, bank statements and audited accounts. No matter where you intend to locate your business, you should contact the central inward investment banking team, usually located in London. Do not apply through a local branch, online or a call center. Tell the bank that you have foreign shareholders and/or directors of your business and that you need a UK business bank account. Timescale: 3 weeks – 3 months.
- Register for tax. VAT – You must register for VAT with HM Revenue and Customs (HMRC) if your business’ VAT taxable turnover is more than £85,000 (~$110,000). Corporation Tax – Any company with a UK branch or office must pay UK Corporation Tax on company profits. You must give HMRC specific information about your company within 3 months of starting up the business. How: VAT – Most businesses can register online. By doing this you will register for VAT and create a VAT online account. You need this to submit your VAT Returns to HMRC. Corporation Tax – You can do this online once you have your company’s Unique Taxpayer Reference (UTR) – sent within 14 days of the company being registered. See the UK Government’s guidance on VAT registration for more information. Timescale: 2 weeks – 2 months.
- Register for payroll and pension. As an employer, you are responsible for paying your employees’ tax, and you normally must operate pay-as-you-earn (PAYE) as part of your payroll. PAYE is an HMRC system to collect Income Tax and National Insurance from employment. Employers must provide a workplace pension scheme for eligible staff as soon as their first member of staff begins working. How: Register as an employer with HMRC and get a login for PAYE Online. You must register before the first payday. Register as an employer with The Pensions Regulator online. Timescale: 2 weeks.
- Search for property. For companies setting up in the UK, the key property decision is whether to rent premises (known as “leasehold”) or to buy premises (known as “freehold”). How: The British Government inward investment agency, Department for Business and Trade (DBT), will be able to assist with a detailed property search – finding the right option that works for you. Please note that you must also register your property with the HM Land Registry if purchased. Please see the Department for Business and Trade’s list of services for further assistance. Timescale: Dependent on the property option taken (>1 week). Signing the lease/buying the property (1-4 months).
- Recruit staff. To be successful in the UK, you need to recruit and develop the best staff. How: Several options exist for recruiting staff in the UK. DBT can help with introductions to recruitment agencies that can assist with the recruitment process. Please see the Department for Business and Trade’s list of services for further assistance. Timescale: 6-16 weeks (dependent on position).
- Get business insurance. In the UK, insurance protection is compulsory to cover you against a number of risks. You must arrange insurance as soon as your new company employs staff. UK law requires that you hold Employers’ liability insurance and commercial motor insurance. Other insurance to consider includes assets, income, liabilities, people, and other risks. How: Insurance can be provided from a number of operators in the UK. DBT can help with introductions to commercial partners who can process these requests. Additional information for overseas companies looking to set up in the UK should contact DBT. Please see the Department for Business and Trade’s list of services for further assistance. Timescale: 2 weeks – 1 month.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Franchising
U.S. businesses looking to franchise within the UK will find that the market is generally open to new brands. However, because the UK is a mature and competitive market, it can be challenging to identify investors and companies should be aware that it can take considerable time and investment to establish a presence. Additionally, local franchise experts advise that brands have a UK-based representative in place.
There are several laws that govern the operation of franchises within the UK, but these laws are broad and generally do not constrain the competitive position of U.S. businesses. The British Franchise Association (BFA) (https://www.thebfa.org/) operates a voluntary code of practice for franchisors.
Direct Marketing
There is a wide range of UK legislation that impacts the direct marketing sector. Compliance requirements are stiffest for marketing and sales to private consumers. Companies need to focus on the clarity and completeness of the information they provide to consumers prior to purchase and on their approaches to collecting and using customer data.
Processing Customer Data
The UK has strict laws governing the protection of personal data, including the use of such data for direct marketing activities. The UK General Data Protection Regulation (GDPR) is the current legal framework for data protection, although new legislation, including the Data Protection and Digital Information bill, is making its way through Parliament. The UK GDPR sets out guidelines on how businesses and bodies can handle personal information. Additionally, individuals, organizations, and companies that are controllers or processors of personal data are impacted by GDPR.
Detailed information on GDPR for the EU is also available on the Trade.gov GDPR webpage.
Direct Marketing over the Internet
Promotional offers must not mislead customers, and the terms that must be met to qualify for them have to be easily accessible and clear. Marketing communications must be identified as such to the recipient, and companies targeting customers online must regularly consult national opt-out registers where they exist. When an order is placed, the service provider must acknowledge receipt quickly and by electronic means, although the regulation does not attribute any legal effect to the placing of an order or its acknowledgment. Vendors of electronically supplied services must also collect value added tax (see Electronic Commerce section).
Joint Ventures/Licensing
Joint ventures may be formed as limited liability companies or as equal or unequal partnerships. Consortia of companies formed to bid or manage specific projects usually use a British-registered limited liability company. These LLCs act as the vehicle to facilitate the rental or purchase of local premises and assets, and to hire and manage a local workforce and support staff. No ownership or control restrictions apply to joint ventures in the United Kingdom.
Express Delivery
There are more than 4,000 express delivery firms in the UK. Service differentiation is reducing, with the lines dividing the courier, express and parcel sectors becoming blurred. Traditionally, couriers serviced the same-day market, express carriers serviced the premium (for example, next-day guaranteed) market, and parcel carriers serviced the non-premium (for example, non-guaranteed, three-day service) market. Express carriers provide premium, time-sensitive services primarily for B2B clients, although increasingly now for B2C clients, particularly as online retailers require premium delivery services to consumers. Many non-premium providers are including guaranteed delivery times, track and trace, and other ‘premium’ features in their services. The leading players in the industry are the four global players DHL, FedEx, TNT, and UPS.
Delivery times from the U.S. to the UK vary depending on the type of delivery service used — priority or economy — and size and amount of product being sent, but can range from a couple of days to a week.
Express delivery companies can advise of the exact customs forms required for products. When products enter the UK, duty (if applicable) is added to the value stated on the customs declaration, plus cost, insurance, and freight. Value-Added Tax of 20% is then added to that total.
Duty rates can be found on the UK government’s Trade Tariff website.
The standard rate of VAT in the UK is 20%, which applies to most goods and services. However, there is a reduced rate of 5% for some goods and services, including children’s car seats and home energy, and a 0% rate for other goods and services such as children’s clothes and the majority of food. Exempt from VAT are items including postage stamps, financial and property transactions.
Due Diligence
Banks, accounting firms, credit agencies and risk management companies provide a full range of reporting services U.S. companies can use as part of their due diligence before signing a local partner. Service providers include the UK subsidiaries of the American-owned Dun & Bradstreet, Equifax and Infocheck. All limited companies in England, Wales, Scotland, and Northern Ireland are registered with Companies House. The WebCheck service offered by Companies House enables U.S. companies to search information on UK companies free of charge, including viewing a company’s filing history. Copies of document images as well as a selection of company reports are available for a small fee of £1 (~$1.25).
The U.S. Commercial Service provides International Company Profile (ICP) background checks on UK companies that can be a valuable part of a U.S. company’s wider due diligence process. The ICP is a useful tool for American companies seeking to enter international business relationships and provides a background check on UK limited liability firms.