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Doing Business in the UK

For many US companies looking for international growth, the United Kingdom is an attractive first foothold in overseas markets. A government keen to attract inward investment, a shared business and civil culture and the English language as well as geographic (if not political) proximity to mainland Europe all make the UK a logical choice for a base for overseas expansion.

You’ll need to understand the British legal and commercial environment, which does differ from the USA in several important respects. It’s also important to understand that the United Kingdom actually comprises four separate nations: England, Wales, Scotland, and Northern Ireland. England and Wales can still be thought of as a single legal jurisdiction, while Scotland and Northern Ireland each have their own clear separate legal systems. The Channel Islands and the Isle of Man are not technically considered to be part of the UK and they too have their own systems. In this article, our advice generally applies to England and Wales, unless otherwise stated.

Setting up in the UK

There are several issues to consider when deciding how you will enter the UK market, not least of which is, given the increase in home/remote working, do you even need a physical presence there? For most companies, ‘boots on the ground’ are essential, so deciding what company structure should be, depending on the size and permanency of your planned UK operation, is the start point.

Joint ventures or distributorship arrangements can be attractive. Operating a branch would be another option, but this is not a separate legal entity. The overseas parent company would be directly responsible for the operations, liabilities, and obligations of its UK establishment. Buying an existing UK company may not be an attractive financial option. For most US companies aiming to do business in the UK, setting up a subsidiary is probably the best option. A UK subsidiary company is a separate legal entity, distinct from its shareholders and directors, which can enter into contracts directly. This status also offers the US parent some protection from the subsidiary’s liabilities.

Incorporating a private company limited by shares is a straightforward process and Motion Paradox experts can help with completing the required forms and filing with the Registrar of Companies. A UK private company will also require articles of association (which govern the company’s administration) and can have just one director, who need not be a UK national. There must be an official UK address (the ‘registered office’). If you’re based or operating in England, the registered office must be in England. If in Wales, the registered office address must be in Wales.

A UK private company does not need to have a company secretary, but it pays to consider appointing one as company secretaries must ensure compliance with all statutory filing and reporting requirements. This too is a role where Motion Paradox can help.

Intellectual Property Issues

Protecting the integrity of the brand you have worked hard to establish and other intellectual property (IP) implications are the most frequent issues US businesses, who are thinking about expansion overseas, ask the Motion Paradox team to consider. Understanding the impact of the UK leaving the EU (Brexit) and how this affects the range of IP rights available to you is equally important. Before entering the UK market, it’s advisable to audit your IP to identify any areas that could not only be bolstered by additional protection but also how these valuable assets could be used to attract investment or perhaps licensed to provide an active revenue stream.

Copyright

The main types of IP rights in the UK includes copyright, which protects original works against copying, sharing, selling, renting, or lending. Copyright in the UK is automatic. There is no need to register and the protection usually lasts 70 years from the death of the author. The UK courts will enforce the vast majority of foreign copyrights, provided they meet certain criteria in the jurisdiction where they were created. There are also a number of international laws dealing with copyright and the USA participates in a range of them. Materials created by nationals of one signatory country will automatically be protected in all signatory countries according to their national laws.

Trademarks

Trademarks (words, names, images, sounds, slogans, and logos) can be registered in the UK and can be renewed indefinitely (subject to renewal fees). It is possible to rely on unregistered trademark protection in the UK, known as “passing off”, however this not as strong as registered trademark protection which is usually the better option in all circumstances. Since Brexit there have been changes to the registered trademark system across the UK and the EU. If trademark protection is required, two separate applications will need to be made to the UK Intellectual Property Office (UKIPO) and to the EU Intellectual Property Office (EUIPO). These separate applications involve different forms and attract different fees and costs.

Designs

It is possible to register designs in the whole of the UK, protecting the overall visual appearance of a product or part of a product. Registration with the Intellectual Property Office is required and can last 25 years (subject to payment of renewal fees). You can protect the texture, color, shape, or material and that protection is not limited to the product to which it was originally applied. Brexit has resulted in a number of changes to registered design rights. If registered design right protection is needed in the UK and the EU, then separate applications will need to be made, or an international registration that designates both the UK and the EU could be filed under the Hague Agreement.

Contracts, Compliance, and Data Protection

Companies dealing with other businesses in the UK are free to agree the terms of their trading contracts as they think fit. However, consumers have greater protections by UK law than in the US. It’s important to ensure any trading contracts with consumers comply with these legal requirements, which extend to all advertising, marketing, and sales promotions as well as rights concerning defective goods and services. To ensure contract terms are enforceable, it is important to review your standard form contract documentation before doing business in the UK.

There are a number of other important general compliance issues any UK company must satisfy concerning data protection and privacy. All providers have to comply with these data protection rules, including the General Data Protection Regulation (GDPR), which is one of the toughest privacy and security laws in the world. Everyone responsible for using personal data has to follow strict data protection principles, especially if your company participates in the UK’s ‘Open Banking’ initiative, instigated in 2017 by the Competition and Markets Authority (CMA) following its market investigation into retail banking.

Of particular importance for any firm in the financial services sector is compliance with regulations concerning ‘operational resilience’, defined by the regulators (Bank of England, Prudential Regulation Authority and Financial Conduct Authority) as the ability to prevent, adapt, respond to, recover, and learn from operational disruption.

Taxation

HM Revenue & Customs (HMRC) is the taxation authority in the UK responsible for the administration and collection of all UK taxes, including value added tax and customs and excise duties. Responsibility for the administration and collection of taxes is devolved thru the Scottish Parliament and the Welsh Assembly to Revenue Scotland and the Welsh Revenue Authority.
UK companies must pay corporation tax based on their taxable profits in an accounting period, generally paid within nine months and one day following the end of that accounting period. For larger companies (with profits of at least £1.5m), corporation tax is due in quarterly installments.

Value Added Tax (VAT) is charged on the supply of goods and services made in the UK. Registration for VAT is compulsory where a company’s taxable supplies for the preceding year exceed the threshold (at the time of writing VAT has been frozen at £85,000 per year until 31 March 2024) or it is likely that its taxable supplies in the next month alone will exceed that threshold. The general rule is that all supplies of goods and services are subject to VAT at the standard rate (currently 20%) unless they are exempt or subject to VAT at a lower rate.

There are however a number of tax incentives to doing business in the UK as well as significant reliefs for qualifying spending on research and development for example. Motion Paradox work with a number of tax specialists and this team can assist you thru the UK tax regime.

Employment Differences

Generally speaking, UK employee rights are stronger than in the USA. The law imposes certain minimum requirements, such as the national minimum wage which is higher than the federal minimum wage of the USA but lower than the minimum wage set by some US states. Women are legally entitled to be paid the same as men doing work of equal value (and vice versa). A UK employer also has a duty to make reasonable adjustments to help disabled employees overcome the disadvantage caused by their disability in the workplace.

All employees and workers are entitled to receive a written statement of specific terms and conditions of employment on or before the date their employment commences. This statement or contract of employment must contain some key terms such as the name of the employer, employee job title, rate of pay, hours of work, disciplinary and grievance procedure, holiday entitlement, and notice periods.

Employees are also legally protected against discrimination, harassment, and victimization on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, gender, and sexual orientation. Discrimination can be claimed at any stage of the employment process and if an employee’s case for discrimination is successful, the employer can be ordered to pay unlimited compensation. US companies should therefore be aware of the rights of UK workers before they commit to opening up operations.

Helping you do Business in the UK

Our team at Motion Paradox can help you do business in the UK, which remains one of the easiest countries in which to conduct business. The World Bank Group regularly ranks it as the eighth most business-friendly country in the world from a regulatory and legal standpoint. London is one of the world’s financial and investment centers while the nations and regions of the UK offer a highly skilled workforce with labor laws that are more flexible than many other European countries. For any ambitious North American company, the UK is an ideal market of some 67 million people with easy geographical access to the rest of Europe and the convenience of an English-speaking country.

Carry on Carrying over Holiday Entitlement?

What should be your approach to carrying over holiday entitlement now, as we seem to be emerging from the worst of the pandemic? How should employers handle leave ‘carry over’ requests from their workers when what was a public health emergency is being replaced by the prospect of much tougher financial circumstances. A trading environment that may require ‘all hands to the pump’ for longer than usual as much as Covid ever did?

Maintaining (or better yet improving) productivity while ensuring that your workforce is committed and content and keeping within the law will require sound professional advice and good judgement for many businesses. It could be a matter of survival for many smaller companies.

The old rules on the ‘carry over’ of annual leave

The Working Time Regulations 1998 set out that all workers (including employees) are entitled to a minimum of 5.6 weeks of paid annual leave. Under the law of England and Wales (other jurisdictions may differ) employers are obliged to allow their workers to take leave within each ‘leave year’, unless they could not do so because of sickness or statutory leave such as maternity leave. In those circumstances, leave was to be carried over to the next leave year. The 2018 Supreme Court Pimlico Plumbers judgement also confirmed that the same holiday entitlement and pay rights apply to those supposedly ‘self-employed’ in the gig economy who are legally ‘workers’.

Rule changes in response to Covid-19

In March 2020, the government passed emergency legislation aimed at allowing businesses the flexibility to respond to the pandemic while also safeguarding statutory holiday entitlement rights. The Working Time (Coronavirus)(Amendment) Regulations 2020 allowed workers to carry holiday forward because it was not ‘reasonably practicable’ to take it in the leave year to which it related due to Covid. In those circumstances, the untaken amount of leave could be carried forward into the following two leave years.

This would apply to employees who were ill, self-isolating or were ‘frontline’ staff or key workers asked to continue working, but workers who cancelled holidays because of travel restrictions would not covered by the amended regulations – they could still have taken a break from work.

What are the rules now?

It seems logical for employers to assume that, since the maximum carry over provision in the March 2020 legislation was two years, these emergency Covid-inspired rules ceased to apply in March 2022, but that is not the case. There was no ‘expiry date’ given in the amended regulations. The right to carry over leave for two years appears to be ongoing, at least until Covid is considered not to be a critical public health issue or the amended 2020 regulations are repealed.

Handling carry over requests

Provided it is not going to seriously damage your business, it is probably best to accommodate requests for carry over leave whenever possible – if not all, then at least part of any accrued leave – as a gesture of goodwill to acknowledge the efforts of your people.
Such a move could help to boost staff morale, delivering an even more committed workforce for the future. West Lothian Council in Scotland has done just that by giving all council employees an extra day’s holiday as a ‘thank you’ for their efforts during the pandemic, describing the extra day as ‘recognition leave’.

Precisely when any carry over leave should be taken is also a matter for agreement within the company, as the amended regulations do not specify how and when carried over leave must be taken. Government guidance merely suggests that best practice is to give employees the opportunity to take it at the earliest opportunity – i.e. in the first year after the holiday has been carried over – if practicable.

Business critical considerations

If the absence of key workers at key times would damage your business, then the March 2020 amendment to the regulations means that employers can still tell workers when they would prefer them take their holiday. At least twice as many days’ notice as the length of the workers’ proposed holiday would have to be given, but this requirement can be waived if the worker and the employer agree.

The current regulations also give employers the right to ask workers to cancel carried over leave but only if there is a ‘good reason to do so.’ Some businesses may be tempted to encourage employees not to carry forward leave by ‘buying it out’ but an employer remains legal obliged to facilitate their employee taking annual leave and cannot replace it with a ‘payment in lieu’.

Carry over leave may also impact some aspects of your business more than others, so the temptation might be to treat requests from different departments differently. However, if you have an all-female team in one department for example, you could face a discrimination claim on gender grounds if you refuse carry over which is permitted elsewhere in the business. If you must apply different approaches to different teams, it is important to be clear on the rationale and document it, but it is always preferable to apply a consistent approach across the whole firm if you can.

Motion Paradox experts can advise about approaches to keep your business on track and your workforce on board. More general information about holiday entitlement can be found at https://www.gov.uk/holiday-entitlement-rights while the Advisory, Conciliation and Arbitration Service (Acas) can give employers free impartial advice on workplace rights, rules and best practice.

Learn more about how a human resources audit by Motion Paradox can uncover any potential issues that exist within your company’s HR policies and practices.

Co-Founders: What Happens When It Goes Wrong

Every co-founder situation is different, but one common problem, especially in start-ups, is how to handle co-founder disputes which can damage progress or even lead to company failure. The problem isn’t unique, even though it may feel that way to the individuals involved in conflict.

Harvard Business School professor Noam Wasserman writes in his book “The Founder’s Dilemma” that 65% of high-potential firms fail due to disputes among co-founders. At Motion Paradox, that has been our experience too. Many of our clients come to us because of this issue. They stay because they recognise we help with other problems.

A co-founder is more than just a business partner. They’re someone with whom you plan to cultivate a long-term relationship, but, as with any relationship, that partnership may not work out. There could be a straightforward personality clash, or business goals might no longer be in sync or questions might arise about commitment to the business. It’s another aspect of the ‘motion paradox’ that many businesses, especially start-ups, face.

Real World Consequences

When a dispute becomes serious, there could be longer term implications for any business. For example, Zipcar is an American car-sharing company offering vehicles billable by the minute, hour, or day for a fixed membership fee. Now a subsidiary of Avis Budget Group, long before Zipcar became a hugely successful business, without seeking professional help, founder Robin Chase entered a 50/50 equity split with her co-founder Antje Danielson.

When their relationship soured shortly after they went into business, Chase and her co-founder parted company, but Danielsen still retained half of the company she was no longer helping to build. Apparent success will also temporarily mask co-founder problems. Things might be going wrong underneath and you won’t be aware of it. When a co-founder dispute becomes so serious that it’s damaging the business, it can be extremely difficult to see any good options.

Plan to Prevent Problems

The first approach to avoid these problems is to focus on preventing conflict, rather than trying to fix it when a lot of the mental, emotional and financial damage has already been done. It can be useful for both parties to document what each expects from the setup, but the most positive step you can take is to be open to early professional advice, recognising that disputes and disagreements are inevitable, in the early days of the business and throughout its lifetime. Getting professional advice early on can identify actionable, practical solutions to put, and keep, the business on track.

Motion Paradox experts can advise about implementing strategies to avoid destructive conflict, because we believe differences of opinion can be constructive. As soon as the company is regularly engaging in commercial activities, we can suggest the processes and create the documentation, such as a shareholders’ agreement, that will provide the mechanisms for dealing with and resolving any disputes.

Typically, a shareholders’ agreement specifies how equity will be shared, IP ownership, pre-emption on issues of new shares/transfers of existing shares, restrictive covenant obligations, what happens to the equity if a co-founder quits, a structure for how decisions will be made (including board appointments) and deadlock provisions.

Dealing With Problems

Even if all these steps to prevent damaging disputes are taken (and certainly if they are not) problems that are seemingly irreconcilable may arise. One useful strategy in these circumstances is to use an independent third-party to mediate your dispute and suggest a resolution. This works of course if both parties are prepared to abide by whatever conclusion the neutral mediator may suggest.

Smoothing Co-Founder Exit

If none of these preventative measures and approaches work and mediation proves impossible, the business will have to face up to the fact that one person needs to exit. There are a number of reasons why a co-founder might leave your business and it is certainly not an uncommon event in the start-up world. Despite your best efforts, if things have reached this stage, then it is usually more beneficial in the long term to simply end the relationship than to try and convince your co-founder to stay on.

Motion Paradox can help smooth the exit of a co-founder, by negotiating on behalf of the company to ensure the relationship is terminated fairly, with full transparency, and as little damage to the business as possible. Getting professionals involved in this final act will also avoid mistakes and potential legal problems in the future.

Professional Advice for Every Eventuality

A co-founder leaving your start-up can feel like a big loss, but it certainly does not have to mean the end of your journey. Every team experiences disagreement at some point. If it doesn’t, chances are destructive conflict is brewing beneath the surface and may erupt at the worst time possible.

Motion Paradox can advise on how to prevent these disagreements becoming toxic and implement processes to manage disputes when they arise. We can help mediate disputes to achieve a positive resolution, but if that proves impossible, we can help mitigate the impact of a co-founder exit.

But things don’t have to be this dire before you consider getting our professional help on board. Athletes have coaches and trainers who help them get to peak performance. Motion Paradox can do the same to help tune up your business.

Digitalisation: The Right (to Work and Rent) Solution?

UK employers have a legal obligation to comply with the prevention of illegal working legislation as set out set out in the Immigration, Asylum and Nationality Act 2006, section 24B of the Immigration Act 1971 and Schedule 6 of the Immigration Act 2016. This legislation requires checks to verify that anyone you employ in the UK has the legal right to perform that work. Landlords have to jump through similar hoops when it comes to establishing the Right to Rent – but more on them later.

Stiff Penalties for Non-Compliance

Employers may be liable for a civil penalty if they employ someone who does not have the right to undertake the offered work on or after 29 February 2008. That was a lesson embarrassingly learned by former chief law officer Baroness Scotland in 2010 when it turned out she had hired an illegal immigrant as her cleaner. The cleaner, Loloahi Tapui, was jailed for a total of eight months and Baroness Scotland was fined £5,000 for failing to take copies of the documents Tapui claimed to show she was entitled to work in the UK.

That’s why conducting Right to Work checks correctly is important, not least because it offers you a defence in the event of problems with the immigration or working status of any of your employees. Equally vital though is carrying out these checks on all prospective employees, regardless of nationality, race, or ethnicity. Singling out certain classes of individual could lead to charges of unlawful discrimination by an employee.

Employers have had two ways to conduct checks on a job candidate’s Right to Work: inspecting their physical ID documents in a manual check or looking the candidate up on the Home Office UK Visas & Immigration department (UKVI) UKVI immigration database online.

Digitalisation of Right to Work Checks

Complete digitalisation has been a long-term goal for the UKVI and its ambition is to do away with physical immigration documents entirely by the end of 2024. Checking an individual’s Right to Work using the temporary COVID-19 adjusted measures has proved popular, especially given the practical difficulties in checking new employee’s status when so many people were working from home. So popular in fact that the UKVI announced in June 2021 that, due to positive feedback, they intended to introduce a new digital solution to allow more types of status to be checked online. This includes UK and Irish citizens whose status cannot be confirmed using the current UKVI online checking service.

Changes to the System in April

From 06 April 2022 onwards employers will no longer be permitted to accept some physical documents as evidence of right to work. This includes Biometric Residence Permits (BRP), Biometric Residence Cards issued to family members of EEA migrants under the EU Settlement Scheme and Frontier Worker Permits for EEA migrants. Employers will instead be expected to use the free UKVI online checking tool. Employers will not need to do retrospective checks on anyone employed on or before 05 April 2022 if those checks were made using a physical document, although follow-up checks will still be required where someone has limited permission to stay in the UK.

Government guidance announced on 17 January 2022 stated that, from 06 April 2022, the government intended to work with Identification Document Validation Technology (IDVT) service providers to carry out checks on people outside the scope of UKVI’s own online checking service.

From that same April date employers can only use certified Identity Service Providers (IDSPs) to carry out digital Right to Work checks on British and Irish citizens – as long as they hold a valid passport. It’s thought that the cost could be as much as £70 per check, unlikely to be welcomed by businesses already dealing with National Insurance hikes and rising inflation.

The Employer Remains Liable

While the digital Right to Work checks are to be completed by IDSPs on behalf of employers, no IDSPs have been identified yet (it is expected that a list of certified IDSPs will be published by the Department for Digital, Culture, Media & Sport ‘shortly’). However, even though it’s someone else doing the check, the legal obligations around prevention of illegal working still falls on the employer.

Employers will still have a responsibility to carry out a risk assessment on every transaction and remain liable for undertaking their own due diligence, so examination of how your current Right to Work processes fit with this proposed digitalisation is crucial.

Limitations of the System

This digitalised service is expected to save time and bring efficiency, although the actual cost of using the system is unclear. And while digitalisation of the system appears to be a positive step, especially in a post-pandemic world, many suspect that in fact it represents the beginning of the privatisation of the UK’s immigration system. Those without broadband access or passports will be at a disadvantage, as will many candidates who may lack any physical documents (like those in the Windrush scandal).

Discussions are taking place to allow IDSPs to provide Right to Work checking services through alternative routes for those without passports or reliable on-line access. A problem here is that the people in most need of assistance (say those moving from welfare to work) are least likely to have any of the suggested documents, tax, NI records, or credit histories proposed.

The Right to Rent

Since 2015, landlords have been required to check that all prospective tenants have lawful immigration status in the UK before entering a residential tenancy in England, otherwise they may be liable for a severe civil penalty. Landlords can delegate this responsibility, along with maintaining records and conducting follow up checks to a letting agent.

The government claims that changing to digital identity checking in April means landlords can assure prospective tenants’ identities and eligibility. Biometric Residence Card (BRC), Biometric Residence Permit (BRP) and Frontier Worker Permit (FWP) holders will only be able to prove their right to rent using the Home Office online service. As with the Right to Work, from that April date physical documents will no longer be accepted as valid proof of Right to Rent. Landlords will not need to retrospectively check the status of BRC, BRP, or FWP holders who entered into a tenancy agreement up to and including 05 April 2022 and will not face any civil penalty if the initial checks were undertaken in line with the guidance that applied at the time the check was made.

Want to Know More?

Employers and landlords can get more information and guidance on the changes to Right to Work and Right to Rent checks by emailing RighttoRentandRighttoWork@homeoffice.gov.uk or by talking with the experts here at Motion Paradox.