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UK Statutory Reporting Obligations must be considered by all entities that are owned in part or in whole by an overseas individual or entity. It doesn’t matter if the UK operations are only a branch and not a separate company, the same consideration must be given. Thought must also be given to these requirements if you are considering external overseas investment into your business.
Steven Burgess, Audit Partner explores some of the key – and perhaps lesser known – areas that must be considered to ensure that you don’t fall foul of relevant UK legislation.
Register of Overseas Entities
The Register of Overseas Entities came into force in the UK on 1 August 2022 through the Economic Crime (Transparency and Enforcement) Act 2022. This forms a key part of the government’s strategy to tackle global economic crime.
It is now a requirement for overseas entities that own UK property or land to declare their beneficial owners or managing officers. Overseas entities cannot buy, sell, transfer, lease, or raise a charge against land in the UK unless they’ve registered with Companies House.
All entities on the Register must file an update statement every year to confirm the information held is correct, even if nothing has changed. Entities may face prosecution or a financial penalty if they do not file.
People with Significant Control (PSC)
Information on the beneficial ownership of companies has been publicly available since 2016. A PSC is someone who owns or controls your company who must be identified and the details recorded on your PSC register at Companies House.
The requirements set out clearly how to identify your PSC; most PSCs are those who hold:
- more than 25% of shares in the company
- more than 25% of voting rights in the company
- the right to appoint or remove the majority of the board of directors
A Relevant Legal Entity (RLE) is registrable in relation to the company if it is the first relevant legal entity in the company’s ownership chain. In the simplest of terms, an RLE is a corporate PSC; RLEs are subject to the same PSC regime conditions as individuals.
There are additional rules around who can qualify as an RLE, though typically it is an entity that must keep its own PSC register or have its shares admitted to trading on certain regulated markets. Where this is not the case then you should look further up the ownership chain to identify the PSC – this often catches out those companies with an overseas beneficial owner.
Detailed examples can be found on the .gov website which address this complex area of legislation.
It can result in a 2 year prison sentence, a fine or both, if a PSC is identified but not notified.
UK branches of overseas companies
A sometimes forgotten piece of legislation is in relation to the requirement for overseas companies to register in the UK where there is a UK establishment. A UK establishment is a place of business or branch of an overseas company in the UK.
Beyond the requirement to register the UK establishment, the overseas owners must also send their own company accounts to Companies House. What they need to deliver will depend on what the company must prepare and disclose under ‘parent law’. Parent law is the law of the country where the company is incorporated.
For example, where audited accounts are filed under parent law those same accounts must be filed with Companies House too. Even where there is no requirement to prepare, audit and file accounts under parent law, accounts must still be prepared, signed and delivered to Companies House.
Audit requirement
Whether you are a UK branch or subsidiary of an overseas entity, you should consider whether an audit is required.
Even where the UK company qualifies and ‘small’ (and might otherwise be able to claim exemption from audit), if the wider overseas group to which it belongs is not small then the UK company would require an audit. There still remain a large number of overseas groups that are unaware of the requirement to have the ‘small’ UK subsidiary audited.
Group size is measured by reference to the following criteria, where two of the three thresholds are breached – and I reiterate, for the Group – then it is likely that the UK subsidiary will require an audit, regardless of size:
- Turnover: Net: £10.2 million, or gross: £12.2 million.
- Total assets: Net: £5.1 million, or gross: £6.1 million.
- Average number of employees in the period: 50.
It is worth adding that the UK government announced in March 2024 its intention to increase the turnover and total assets thresholds by almost 50%.
UK legislation and matters of interest for overseas owners stretch far and wide and beyond those recorded above. Our team has the expertise to help advise on any such matters, and in addition our tax advisory team regularly assists international clients on matters such as transfer pricing, corporate tax obligations, residency issues, global mobility, duty and customs. For advice in these areas please contact Steven by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk.
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