Global Roadmap: Navigating the Complexities of Global Business Expansion — United Kingdom

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Annie: Hello, everyone, and welcome to today's webinar, "Global Roadmap Series: Navigating the Complexities of Global Business Expansion — United Kingdom." So my name is Annie Triboletti. I will be your moderator for our session today.

So joining us today are Helena Ledic, Rupert Gerald, and Wenda Adriaanse. So with that, I would like to welcome Helena, Rupert, and Wenda.

Helena: Rupert, why don't you just introduce yourself so everyone can hear your voice?

Rupert: Brilliant. Hi, everybody. Thank you so much for taking the time to join today.

Helena: Wenda.

Wenda: Hi, everybody. My name is Wenda. I started out my career as a solicitor in the Netherlands, admitted to the Bar of Amsterdam, and nowadays I'm the head of Corporate Services at CSC in London in the United Kingdom. Nice to be here. Thanks a lot for having me.

Helena: Thank you. And then, everyone, I am Helena Ledic. I'm one of CSC's associate general counsels. Our headquarters are in Wilmington, Delaware, but I am actually located in Chicago. And then also, just to let everybody know that today this is not intended to be legal advice. Our presentation today, we're not going to be discussing any particular fact situations. We're just going to go into some generalities. So, of course, if you have specific questions, legal questions, make sure that you reach out to your own legal counsel with that.

So with that, I'm going to get us started off by talking about what our agenda is going to be today. So I am so delighted to be able to have Wenda and Rupert joined today to give their experience about forming entities in the UK, what are the different processes, what are the different things that we need to know about. So we're going to go through a few different things.

We're going to talk about the UK country profile, or I should say we should just call it the UK profile. We're going to talk about doing business in the UK. Then we're going to go into looking at some of the different types of company structures that the UK has, and so we'll talk a little bit, certainly for the benefit of our U.S. audiences, a little bit of that comparison and contrast. Then what we'll do is we'll go into incorporating and maintaining that legal entity in the UK, and then we'll hit accounting requirements and tax obligations.

If you have any questions, feel free to pop things into the Q&A. And if we have time at the end, we will certainly be able to address those in there and jump into them.

So with that, let me get here my cursor to our little next slide. So let's get started off with the profile of the UK. So the UK's GDP is about $3.3 trillion. And very importantly, with the World Bank doing business ranking, it comes in at number six. And as we all know that London is the second largest financial capital of the world behind only New York. And then since leaving the European Union in 2000, the UK has been free to establish its own tax, financial, and legal regulations. And since then, the UK has built increasingly integrated international trade networks. So you can see a little bit of facts and figures.

And then we'll jump into a little bit more over here. So let's talk a little bit about why it is so attractive for investors and businesses. The Global Innovation Index ranks the UK at number five.

One of the other things that is very attractive is recently there had been something called a startup visa for people coming to the UK to start businesses. About a year and a half ago, that switched to what was called the Innovator Founder visa. And this is eligible for three years, and it's renewable also. So to qualify for this visa, you need to be able to show that your business idea is new, innovative, viable, and scalable. And you actually have to meet with, I believe, certain types of regulatory bodies to make sure that everything is on track with that. But certainly the UK is very welcoming to businesses.

It's also very committed to net zero greenhouse emissions by 2050. And in furtherance of that goal, it's home to the world's largest offshore wind farm off of the Yorkshire coast in the north of England. And recently, energy projects counted for about a quarter of all industrial investments, at about £15 billion.

And in addition to competitive employment regulations, Oxford, Cambridge, and then University College in London are on the list of the top 10 universities in the world per the U.S. News & World Report.

So with that, so we've gotten a little bit of background. Let's now jump into doing business in the UK. So I believe we are going to get started off with this, I think it's going to be Rupert that's going to take us through this, right?

Rupert: Yeah, that's right. Thanks so much, Helena. That's great to set the scene and have a little bit of background. So right, so doing business in the UK.

So first up, you've got to choose your investment structure, or rather the right structure for your investment. So mirroring the regimes in a number of comparable jurisdictions, we've got various types of legal entity form that you're able to use to set up and support your investment into the UK or perhaps your market entry into the UK.

So most common types, we've got private limited company, we've got a public limited company. We've got two types of partnership — limited liability partnership and the limited partnership. We have the branch office, which is really an overseas or a UK representation of your overseas entity. And so perhaps a U.S. company setting up a branch office in the UK, it's doesn't have legal personality on its own right in the UK, and it's got certain restricted parameters under which it can operate day-to-day activities. But it's certainly another opportunity or another option to establish a local UK-based presence. We have an orphan structure, which is sort of more commonly associated with capital markets deals, and we're going to look at those shortly in the presentation.

And then the only other point not mentioned on this slide is a foreign company. So a foreign company could be kind of a UK representation of an overseas company to help establish UK tax residency. It's typically used for tax efficient structuring.

Okay. So if we take a look now at business registration and incorporation, so you'll hear quite a lot throughout the course of this presentation about UK Companies House, what is it?

Helena: Rupert, would you like me to go to the next slide?

Rupert: No. No thanks.

Helena: Oh, sorry. I'm so sorry.

Rupert: That's okay. So we're just on the middle section here. So UK Companies House is the executive agency of the British government responsible for overseeing the Commercial Registry and the Companies Register within the UK. So it's really the first kind of point of call for all record of UK companies and all individual activity levels within those companies. Really important point to note is that Companies House is publicly available. We'll take a look at a couple of screenshots shortly. And so that helps support the UK as being a really transparent environment in which business can take place.

So when you register your company, you incorporate it on UK Companies House, first step you have to draft constitutional documents. That will typically comprise of the articles of association or the M&A and also the certificate of incorporation. We have to prepare the PSC register, the register of members, and the register of directors. I think the register of members and directors is perhaps a little self-explanatory. You'll be very familiar. But the PSC register is something a little bit more specific to the UK. So this is the persons of significant control, and for all intents and purposes it's a UBO register to document and record the key ownership and control of the UK legal entity, the key criteria typically being 25% interest in that UK company.

You'll also need to set up the books and the company books. The company books really are the collection of documents and registers that together record all of the company's activity, the structure, and the history. And so they will be set up at the start of the entity's lifespan and then maintained throughout the business activities and really throughout the entire life of that entity.

So if we take a quick look now at the key authorities in the UK that are relevant for the maintenance of companies, we've talked about UK Companies House, the primary register of companies. HMRC, His Majesty's Revenue and Customs is critically important. It really is the UK authority for all tax payments and customs. The FCA is the Financial Conduct Authority. It's the independent regulator in the UK for the financial services industry, and again crucially important for the regulating or rather for the oversight of companies engaging in regulated activities. Fund managers might be a most common example. And then, finally here, we've got the UK Companies Act, which together are really the compilation of laws which govern the activities of UK companies.

So on to the next slide, please. So UK Companies House, we touched on. Really important aspect of the day-to-day administration, the public recordkeeping, availability of information which anybody can access. And here are a couple of screenshots just to show you pictorially what Companies House online website looks like.

And so on the left-hand side, you can see key data points. You've got the company name. You've got the registered office address. You've got the status of the entity. It might be active. It might be dormant. You've got the type of the company. Here, we've got a private limited company. Down on the bottom on the left-hand side, you've got various filing deadlines. So these are really the key deliverable dates for the basic statutory compliance, the annual filing requirements that all companies have to comply with.

In addition to basic company information, we've also got the Director Registry publicly available. And you can see that in the middle screenshot. So in this case, we've got two individuals. We've got Paul, and we've got James, directors on this company. It's actually the CSC in-house company. And as you can see, there are certain personal data points, which are also publicly available. We have the date of birth blacked out here just for a little privacy, but that's the month and the year of birth of the directors, not the actual day, nationality, correspondence address really important aspect. And then kind of the appointments and the country of residents.

Then finally, if we look at the right-hand side, as you can see, all filings that are made per company on Companies House are individually recorded and will all be accessible sort of for future access. Examples I think here you can . . .

Helena: So . . .

Rupert: Sorry, go on, Helena.

Helena: And I was going to say, Rupert, let me just ask you about this slide over here. So you can see that we've redacted, we've kind of put a black bar on that information over there of the month and the year of birth. And with everyone being so sensitive about their personal data being out and available, is there any way that the directors will be able to block that information? Is there anything that they can do if they don't want that information out?

Rupert: So the short answer is no, there's not. I think the information, rather the personal information on directors is publicly available, and it has to be recorded here on Companies House. That being said, it is a little limited to what you can see. As I mentioned, the date of birth won't mention the specific day. The correspondence address is not the residential address, but it's the day-to-day business address, day-to-day correspondence address for the director. So the short answer is, yes, the information is publicly available, and that's not avoidable, but the level of detail is a little limited.

Helena: Okay.

Rupert: Thank you. Okay, I think we'll move on.

Helena: So why don't we now jump into a little bit of our UK company structures, and I think Wenda is going to get us started off talking about the different types of entities that we have in the UK.

Wenda: Yeah. Thanks, Helena. Thank you very much. Yeah, so the four most popular flavors of entities in the UK are private limited company, public limited company, the limited liability partnership, and the limited partnership.

So the private limited companies makes up about 95% of all companies registered with Companies House that you just heard Rupert speak about. So that's the vast majority. That company requires at least one personal director being appointed. And in addition to that, we also need, obviously, at least one shareholder. And the director who will administer the company is responsible for filing annual accounts and financial statements. Also, if a tax return is required, he or she is responsible for filing that tax return and to obviously also pay the corporation income tax. And the company, when it is incorporated with Companies House, it is also automatically registered with His Majesty's Revenue and Customs, so the tax authorities in the UK. So it will automatically receive a tax ID.

For public limited companies, they require an appointed company secretary. They also need to issue at least 50,000 shares, and at least a quarter of those shares will need to be paid up. The same is true for this company as for the limited company. When it's incorporated with Companies House, it is automatically registered for tax purposes with HMRC. There is a shorter timeline than nine months after the financial year, it's actually six after the closing of the financial year, the financial statements annual accounts will need to be filed with Companies House.

Then there are, strictly speaking, the partnerships are not legal entities. They are partnerships. So the basis of these, let's call them partnerships, are agreements. So for the limited liability partnership, at least two members are required, and each member is responsible for their tax on the share of the profits instead of the LLP itself. So it's a see-through structure so to say. So as I just mentioned, the basis for a limited liability partnership is an agreement where the partners decide on how this particular partnership is to be managed. And there's also an LLP Act, but that is very limited. It's not as comprehensive as the Companies Act just because, again, it's that agreement that is the basis, the very firm basis of this partnership. This partnership needs to be registered with Companies House as well and is automatically registered for HMRC and will get a tax ID.

Then we're moving on to the limited partnership.

Helena: So Wenda, before you move on . . .

Wenda: Sorry, yes.

Helena: . . . can I just ask a question over here on this slide? So you said that from the private limited companies, that's about 95% of the registrations. So that sounds like that's fairly similar to the U.S. notion of the LLCs. Is that a fair statement to make?

Wenda: Yeah, for sure. That's a good comparison.

Helena: Okay.

Wenda: Yeah. Okay Oh, I'm still on the last, so I'm just going to go previous slide. So on the partnership, the last one, so at least two members are necessary for the limited partnership. There's also a formal agreement describing the agreed-upon split of earnings, losses, liabilities, and ownership. And the LP also needs to be registered with Companies House and will get automatic registration with HMRC. And then for the limited partnership, there's a nominated partner that administers the partnership and also the tax returns, finances, and any other liabilities on behalf of the members.

So I'm going to go to the next slide. Yeah, so we thought it would be beneficial for this audience to just talk about a couple of general structures that we often see in the UK. The first one being on your screen here is the corporate structure, where there is a UK private limited company at the bottom in the red box, and then there are one or more shareholders. So this UK company can be an operational company coming into the UK space for commercial purposes, but it can also be a holding company, so, for example, holding assets in another jurisdiction and the UK company is interposed for tax efficiency. So we see that kind of structure a lot in UK as well.

And with that, I'm going to go to the next slide. Rupert, this is a typical structure that we see for funds. I think you volunteered to speak a little about this one.

Rupert: Thanks. I certainly did. So yeah, absolutely. So this is the typical fund structure, a very vanilla example of what we might see for maybe a private equity investment or a real estate fund, infrastructure fund really across any of the different asset classes.

So what you can see at the top there is the limited partners. So they're really the investors in the funds. They might be individuals. They might be different fund structures themselves, or perhaps they might be corporates. But they're really the parties who are committing capital into the fund and ultimately sort of pooling that investment cash. So that capital will be pooled within the fund LP itself, the limited partnership most often. It's kind of denoted by the purple triangle in the middle here.

Important consideration really for the fund is where it's going to be domiciled. Different jurisdictions or rather fund managers based in different jurisdictions have typically got preferred offshore jurisdictions to domicile the fund vehicle. I think in the in the U.S., the audience on the line will know far better than me, but I think Cayman Islands and BVI will often be used for the offshore domicile of the fund vehicle. Here in the UK, we see all sorts, but we most commonly see the Channel Islands, so that's Jersey and Guernsey. And we often see Luxembourg as well.

So we've got the Fund LP. The Fund LP really receives instructions from the general partner. The general partner would typically be the operating company within the fund structure, operating company that houses employees, perhaps also acts as the investment advisor, has got the deal team, the investment team, the financial kind of team or control or what have you, who really run and kind of control and manage the fund and critically give instructions to the fund vehicle itself in terms of what to do typically for investment activity.

On the downstream, you can see the investment stack of SPV holding companies. That would be TopCo, MidCo, and BidCo. So we typically see these as limited companies. They might come in different jurisdictions. For example, the TopCo might be in Jersey, MidCo and BidCo in the UK just as an example. And that will really be dictated by the tax advisor in the interest of making the most tax-efficient holding structure for the fund to flow in order to acquire the Portfolio Company down at the bottom, or the asset or the target we might call it as well. The Portfolio Company most likely to be the operating business that's being bought. That's the business that actually does things, manufactures or sales or whatever the business activities might be.

So now we're going to have a very quick look at a typical capital markets structure. So here we've got what we call an orphan SPV structure, typically used for a number of different financing arrangements, most often the issuance of notes, the issuance of bonds, or perhaps engaging in various different loan transactions. We might also call this kind of a charitable SPV structure or kind of charitable orphan structure or orphan structure with charitable status, and I'll explain that one in a little bit.

A key aspect of what we're looking at here is that the structure itself is bankruptcy remote, and the liabilities of the SPV do not sit on the balance sheet of any of the direct counterparties. So as you can see in sort of the larger pinkish box, the beneficial interest and title of the underlying assets, down at the bottom end, are transferred to the SPV, and these are then used as collateral to secure the notes or the bonds or the loans or whatever financing structure it might be.

So up at the top, you can see various different key roles, which are undertaken to make this structure effective and live. So you've got the cash manager. So the cash manager ensures that the interest due and payable is being received in accordance to the financing terms, and it's being distributed in accordance with the priority of payments. The facility agent will have a fairly similar role. but it's more commonly associated with a loan transaction. And then up at the top, you can see the security agent, who really kind of holds and overseas the underlying portfolio of security or collateral and critically is acting in the interest of the investors.

Now on the left-hand side, we've got the share trustee, the share trustee being the party who retains the legal ownership of the SPV, thereby achieving the orphan status. Now a few moments ago I mention this is often referred to as a charitable trust structure. Very often the legal ownership might be held by the trust, but any kind of additional proceeds would be distributed to a charity, and the charity would be clearly documented within the transaction documents themselves.

Helena: So now what we're going to do is we're going to jump into talking about incorporating and maintaining a UK legal entity. So we've got these different processes, and we're going to go through some of these different steps. But let me ask questions now to Rupert and Wenda. So is there a different process for different company types here, if we're doing an incorporation for a UK company?

Wenda: Shall I take that one, Rupert? So the different processes, yes. So for a for a limited liability partnership, a private limited company, and a public company, the process is electronic. So it consists of filling in some essential details that we spoke about earlier, like the details of address, the name, the directors, the shareholder, and so on and so forth. And then it's an electronic filing.

For the limited partnership, that is an old-school paper filing still, just because Companies House hasn't invested so much in the infrastructure to make that electronic just because that it is a more rare animal. And I think that the investment just hasn't been made yet, even though it's 2024.

Helena: So . . .

Wenda: Does that answer the question?

Helena: Yeah. And then is there other additional information that's also needed with this . . .

Wenda: No.

Helena: . . . and how long do things take?

Wenda: There's essential details. There is an element, like if there are bespoke articles, so for articles of associations, in the U.S. that's called bylaws. So obviously, it's possible to use model articles that were kind of drafted when the Companies Act 2006 was introduced into the UK. So it's possible to say, okay, the model articles work for us, so we'd like to incorporate this company with the model articles. But it is also possible, and that is something we see when there are multiple shareholders or multiple share classes, where there's a very bespoke arrangement of voting and maybe dividend payments and everything that needs to be laid down in the articles of association. Then that also needs to be uploaded at the time of incorporation. It's also possible to change your articles later on in life of the company. But it's also a possibility to immediately do that upon the point of incorporation.

Helena: So is this a quick process, or does it take longer?

Wenda: So it's a quick process because the eFilings can be made for a same-day incorporation or registration. So that's pretty quick. The cutoff time is I think around lunchtime, so 1:00. Anything submitted to Companies House before that time in the day, we'll see 99 out of 100 times a same-day incorporation, unless obviously there is some mistake with the data that's been submitted and it's rejected. Then, obviously, that will first need to be amended before it's resubmitted, and probably then we're looking at the next day. But yeah, so it's a pretty straightforward process once you have all your ducks in a row and you've got all your information collated.

There's a small fee. It's less than £100 for the different, and it's between £40 and £75. So that can be an electronic payment as well. So it's a pretty straightforward process.

Helena: Very good. Thank you. So if we jump then to our next slide over here, so we'll talk about that limited company minimum legal requirements. And I think that Wenda has probably gone through pretty much all of this already. But to reiterate, we need a UK registered office address. We need to have an annual confirmation statement, annual financial statements. And then you have to have at least one individual director, share, and shareholder.

But when we were planning this and we were working together on our slides, I had a few questions that I wanted to ask here as follow-ups. So with Wenda, let me come to you. So let's talk about residency requirements for directors. We mentioned that we have to have an individual director. Do we have to . . . I mean what is the residency requirement then?

Wenda: So the individual director does not have to be a UK resident. So it can be a director from anywhere. That's not a specific requirement. A lot of people ask about the UK registered office address. So when you incorporate a company in the UK, you need to have an address in the UK. Now not everybody has that. But there are obviously professional services providers that can offer such an address for use, and that's then an address that can be used to also receive official post for example from Companies House and HMRC, the tax authorities.

Helena: So let me ask you another question, and let's talk about shares this time. So do the shares have to be denominated in pounds, or can they be in different currencies?

Wenda: Yeah, that's a great question. It can be in any other currency, and it can be in any denomination. So there's not a minimum. But what we see is that most companies are incorporated with at least one share of one pound. But obviously, it could also be a dollar or a euro or a yen or anything else. That's fine if that works better for group accounting purposes.

I just wanted to add one thing here because we're speaking about minimum legal requirements. I would just like to add on this slide minimum requirements for good legal standing as well, and they're on this page. They are the confirmation statement and the financial statements filing. Now Rupert is going to talk to you about the annual financial statement in a little bit. But I would just like to say that this is the most important ingredient in staying in good legal standing. To file the financial statements on time, that is a very strict requirement.

The confirmation statement is the second point that is on an annual basis. It's a very important ingredient to remaining in good legal standing, and it is a declaration. It's a statement by an officer of the company that's just confirming the essential information of the particular company or partnership. So it's the same as the incorporation checklist really, but then it's the annual confirmation on the anniversary of the incorporation date, just confirming the essential details about the directors, the share capital, the shareholder, etc.

Helena: Well, let me ask you something else then about annually. So if we were setting up a limited company and roughly would you have an idea of what might be the annual cost to be able to set that up to maintain it? What is something that is a reasonable budget or expense for this?

Wenda: Yeah, that's a great question as well. So obviously, it depends on whether the party that wants to set up in the UK has any presence in the UK. But let me answer the question for if there is not. So suppose that the party that wants to start off in the UK has no presence at all and no representation. Then it is possible to work with corporate services providers, who will provide an individual director, an office address, accounting services, and also filing of the financial statements and the confirmation statement. And I would estimate that that would come down to just south of £10,000 would be my estimate. Yeah.

Helena: Okay, very good. So if we move on now to talk about the company secretary, I think that Americans are very familiar and certainly in other countries that have this process a company secretary. But why don't you go into it a little bit about the UK aspects of the company secretary?

Wenda: Yeah. So on the slide is the question, "What is a company secretary?" Well, in the UK, a company secretary is an officer of the company, and the company secretary provides legal advice to the director, so to the board. They also deal with third parties, such as maybe lawyers and auditors, Companies House, HMRC, the Stock Exchange, and any other third parties that the company might be involved with. The company secretary is also responsible to keep the company in good legal standing, what I just spoke about just now, and it also looks after compliance with any policies, statutory requirements, and legal requirements.

Now as I mentioned a couple of slides ago, for a private limited company, it's not required to have a named company secretary. But for a public limited company, it is required to have an appointed company secretary.

Helena: So let me ask you. Are there ever external company secretaries?

Wenda: Yeah, for sure, and that goes back to the answer I just gave. It depends on the presence and representation that any company has in the UK. In our line of work, we see a lot of foreign investors coming to the UK who would want to engage a party to provide this professional service, just to make sure that you have this guidance on compliance with everything legal statutory in the UK. It's buying a reassurance, so to say, that everything is going in accordance with rules and regulations in the UK.

Helena: All right, very good. So why don't we move on to the additional requirements that we have over here? So Wenda, why don't you walk us through the good governance, the tax substance, and then the company compliance?

Wenda: Yeah, sure. So good governance is laid down in the articles of association of the company. It's in the Companies Act. And it ensures that company is being run correctly. So that goes down to documentation, and in that documentation will be laid down any material decisions of the board, any changes of officers like director changes, changes in address, changes in ownership, but also maybe the company entering into agreements, for example to rent an office or to buy another company. Those kind of decisions on behalf of the company do require documentation if you would like to adhere to the good governance principles. And it's obviously important for proper accounting. And also when there is an audit coming up, it's easy to see what the history was of this company in the last 12 months.

Then tax substance, that we see a lot because of a certain structuring of a participation or an investment in a jurisdiction other than the UK. So the UK is interposed for tax efficiency. And the tax substance ensures that the company chooses to pay its corporation tax in the UK because that is more efficient than paying corporation tax in the jurisdiction where the asset is, for example. That could be a reason.

If you need to create tax substance in UK, it comes down to having mind and management of the company in the UK. And that typically means having UK resident directors, even though we just discussed it's possible to have non-UK directors. If you're looking to maintain tax substance in the UK, it's important to have UK resident directors. And it's also important to run a cycle of board meetings in the UK, just to ensure that all those decisions throughout the year are taking place in those board meetings that are held in the UK, with everybody present in the UK.

Then on compliance, I spoke about that a little bit earlier. We have those two essential ingredients, so keeping the company in good legal standing, which is the confirmation statement confirming all the essential information of the company on an annual basis and filing the annual accounts and financial statements.

Rupert: And just to inject, Wenda, we saw the screenshot earlier of UK Companies House website. Those are the deliverable dates that you're able to see there, the due deadlines.

Wenda: Yeah, yeah. Very true, yeah.

Helena: So Wenda, going back to mind and management for a second. So when we were preparing this, these were the questions that I had. So do all the meetings have to take place in the UK? And you've kind of addressed it. But then when we talked, you kind of said eh, so talk a little bit more about that.

Wenda: Yeah. So mind and management should be seen as the more, the better. So when you ask is it possible to have a meeting via Tams with a U.S. director on it, although you're trying to achieve tax substance, yes, it's possible. But it's better to have the director come to the UK to have the board meeting and attend there. So there is no rule against it. But for tax substance and mind and management in the UK, the rule is the more, the better.

Helena: And so to follow up with that, online meetings permitted, again when we prepared this, you kind of said yes. So would you like to follow up with that a little bit?

Wenda: Well, yeah, online meetings, again it's possible. But if you're trying to achieve tax substance and have minds and management in the UK, the better it is that the decision-makers are in the UK and also decisions are being made in the UK. So if you have one director in the UK, one director in the U.S., and they're convening a board meeting over Teams, then a tax authority could say, "This is not a board meeting that's held in the UK. Technically speaking, it's held in both jurisdictions or none of the jurisdictions. It's all held in cyberspace."

So if you have a live meeting in the UK, it also depends on what is your tax gain here. If the value of that is large enough, you're not going to take any risk and just fly over to the UK. If you want to have a U.S. director on your company, make sure that they attend in person in the UK to not give the tax authority any argument about where the board meeting is held.

Helena: Okay, very good.

Wenda: But this is only applicable to the director. So if you have other people of the team, for example finance team or anything else, that doesn't matter because they are not the decision-makers, right? They're not relevant in terms of tax substance.

Helena: Rupert?

Wenda: Rupert, you wanted to say something.

Rupert: I was just going to add one small point, which is if the UK entity is being set up for kind of a tax rationale or for tax kind of efficiency driven purposes, then the tax substance requirements need to be actively sort of adhered to throughout the lifespan of the entity and not just at the beginning. I think that's also sort of a core role that someone like us would play. The company secretary is really there to make sure that that mind and management is and the documentation of it is built up on the ground in the UK, not just the starts and the way the company is set up, but again through it ongoing lifespan.

Wenda: Yeah, that's a good point. Yeah. Okay, with that, yeah, let's go to the next slide.

So what happens if the company is not compliant, so those essential ingredients to keeping the company in good standing are not full out? The first one is that the company can be fined. Now the fines are not particularly high. They start at a little bit less than £200. But they go up over time, so they double every three months, and that is capped at some point in time. So the amounts aren't terrible, but it means that the company is not in good standing, and that's a lot worse because, obviously, the trading partners might see that in a bad light, any lenders might see that in a bad light, any vendors and other third parties, authorities might see that in a bad light.

If non-compliance takes long enough, then there is a possibility on the part of Companies House to strike off the company because it's not maintained and it can be stricken off the record. And the sets of the company will then fall to the Crown. So it's possible to then reinstate the company, but that is a court action and obviously that will incur cost.

The third consequence of being non-compliant is disqualification of the directors. That's obviously a very serious condition, and it's only when the accounts or the confirmation statement is really overdue and the company needs to file, but it doesn't.

So yeah, so these are some of the consequences.

Helena: All right.

Wenda: I'm going . . . Ah, well, yeah, we're already at the next slide.

Helena: And I was going to say so we're going to jump now to the accounting requirements. And I think that we're going to be hearing I think it's going to be Rupert that's going to jump us into this. And Rupert, I just want to let you know that we have we are at 49 after the hour, so just to keep an eye on the clock . . .

Rupert: Understood. Thanks. We'll rattle through it.

Helena: . . . which means speed up perhaps, Rupert.

Rupert: Understood. Okay. So yeah, so all UK companies have to submit annual financial statements with UK Companies House subject to some exemptions. They're a legal requirement. It's something that has to be done.

In terms of the time frames, those companies have got nine months from the end of the financial year to submit the records. I think two points to note here is firstly that the year end can be amended at any point, and the company secretary can help you to do that. That's typically to be brought in line with accounting deadlines and deliverables with the rest of the group. So the UK entity has got a little consistency.

Second point is that at the moment, and really as a result of the COVID environment, it's currently possible in most circumstances to apply a three-month extension from the end of the financial year. So that gives you a little bit of buffer and a little bit more time before the financial statements have to be delivered.

Most companies here in the UK have got a December 31st financial statement year end date, which means that the accounts are due for filing 30th of September of the following year. PLC accounts are a little bit different, and there's a six-month window to get the AFS filed.

And then, finally, we've got two accounting standards that can be adopted for the financial statements. The first is UK GAAP, and the second is IFRS. UK GAAP is generally viewed as a little bit more straightforward, largely because it's got fewer disclosures. But it's entirely down to the discretion of the company as to which standard you choose to adopt.

Okay, so we're going to take a quick look at the composition of the financial statements. And here, you've got a number of the key kind of information points or sections that together will comprise the financial statements. So we've got the company information. That's just going to be key kind of information points about the company ,the names of the directors, the company address, the company secretary if there is one, the auditor if there is one.

The director's report is a written report by the director, discussing the business activities of the entity and discussing the going concern. I think what one key point is they'll also discuss business activities or updates that have taken place after the end of the financial year, but might still be relevant within that reporting period or before the accounts are actually filed. The strategic report is a little similar to the director's report, but it typically goes into more detail. The audit report, if there's an audit, we'll come on to that, is a commentary by the auditors on the finding throughout the audit.

And now we come on to the actual financial elements. So we've got the profit and loss, which is a summary of the financial activities and kind of an incoming expenses throughout the year. We've got the balance sheet, which is a representation of the value of the year end assets, liabilities, and expenses. We've got the statement of changes in equity, the statement of changes in cash flow, which just represents the movement throughout the year of those two elements. And then we've got the notes to the financial statements, which present more of a detailed breakdown typically of the profit and loss.

So as we mentioned, there are various exemptions available. One of them in relation to financial statements is that if you qualify as a small company, then you're able to file a much more limited or streamlined version of the financial statements. So the first question is, how big is the company?

The size needs to be established. The criteria to designate a company as small, you have to meet two of any of the three bullets listed down on the screen. You must have an annual turnover less than £10.2 million, the balance sheet total must be less than £5.1 million, and the average number of employees must be less than 50. Interestingly, these are the same criteria for the audit exemption.

All UK companies have to go through an audit process unless it can meet the exemption requirements. The audit exemptions are actually the same as the three items you see here, the key difference being when you assess a company for the size and if it can be determined as a small company, then you look at the company, the UK entity on a standalone basis. When you look at it for the purposes of applying an audit exemption, you look at the entire group, so not just the UK company, but it's downstream subsidiaries and it's upstream parent companies. Really key point and that's quite specific to the UK.

As I mentioned, if the company is a small company, then the accounts are a little bit more streamlined, you don't have to provide the profit and loss accounts. You don't have to provide a director's report, and then there are fewer disclosures.

Helena: So Rupert, we're rapidly running out of time. So why don't you kind of give us a little bit the high level of auditing here?

Rupert: Yeah, absolutely. So the audit is a review of the company's financial statements to ensure they're fair and accurate. It's really a third-party professional evaluation as to the accuracy to make sure that there's nothing untoward going on, that the financial statements are a complete and fair representation of the financial strength and position of that company.

Helena: So Rupert, let me ask you a few like real quick follow-up questions. We've heard that the process for finding auditors in the UK can be very difficult. Is that an accurate statement?

Rupert: So there have been a number of public cases or instances over the last few years of auditors having not done as thorough a job as they potentially should have done. And I think, as a result, the appetite from the audit firms is becoming a little bit more stringent. And so I wouldn't say it's challenging to find an auditor. Certainly we can always assist our clients to find on the whole. But perhaps we have to be a little bit careful the size of the auditor. You've got the Big Four firms. You've got sort of medium size accountancy or audit firms, and then you've got local kind of auditors. Each one of those will typically be willing to take on kind of clients of a different profile, a different size, etc.

Helena: Very good.

Rupert: Okay. So if we look at the typical accounting process, so the books and records will be a compilation of the key financial kind of data taken from documents that portray a picture of what's going on in the company. These records might be the bank statements, loan agreements, fund flows, contracts, invoices. The bookkeepers will extract the key financial information and put them into the accounting software or Excel to create the trial balance. The trial balance at the end of the year will be used to feed into the profit and loss in the balance sheet. The chosen accounting standard will be applied, UK GAAP or IFRS.

And then that will ultimately produce kind of the financial statements, which will have to be reviewed and signed off by the director. If the audit is applicable, they've got to be reviewed and signed off by the audit partner. And then they'll be submitted to UK Companies House. And then importantly, they will be electronically tagged, a process we know as the iXBRL tagging. They'll be electronically tagged so HMRC can keep a track of the status of those submissions.

So we touched a few times on Companies House. This again is just a little bit of representation of what you can see publicly available. There's an example web link up there. I think we've really looked at everything on the left-hand side already. The only point we haven't noted so far is on the bottom right-hand corner you can see the red marker "accounts overdue." And so that's if you miss one of those key deliverable dates, it will be publicly recorded, out there sort of for anyone who needs to check on the state of the company to see.

I think that's it for the accounting side. Wenda is going to give a very quick overview of the tax obligations for a UK company.

Wenda: Yeah, so I think we're indeed running out of time rapidly, so I'll keep it short. So the companies in the UK have to send their accounts to Companies House, but they also have to send a form CT600 to report to HMRC. That form will show the calculations of how much corporation tax is due to be paid to HMRC, which is based on the profit that the company made in the year. The CT600 form is generated from the accounts, and it pulls the relevant information from the accounts. And then, as Rupert just said, the form CT600 can be filed in the iXBRL format. That's the specialized piece of software. It can be online filed with HMRC. And that needs to be done within 12 months after the year end of the company to avoid a late filing penalty. And any payment of tax that needs to be made, is earlier than that, needs to be done within nine months and one day after the accounting period.

The other tax relevant is the value added tax. And so it's important to note that a UK company does not come automatically with a VAT number. It needs to register for a VAT number with the authorities. That's the first relevant piece because not every company has annual sales in excess of £85,000, and that is the threshold so to say. But obviously, most trading companies in the UK are VAT registered.

Holding companies will not usually be registered for VAT purposes, just because they won't make that threshold of £85,000. And then, there is an example, which I will leave for now because I think we are running out of time, but it shows a little bit about how purchases and sales can be netted off.