Payroll, HR, employment law and entity setup in the UK
“Though the UK is leaving the EU at the end of 2020, it remains a great place for international companies to gain a foothold in Europe”
The UK has one of the highest ease of doing business scores in the world, being 2nd only to the US within the G7 countries. The UK also has a manageable taxation system and uses relatively simple business structures. The language and access to a large and well educated talent pool rounds out an impressive offering, making the UK an obvious choice for companies looking to expand into Europe.
World Bank Ease of Doing Business Ranking (1-190)
Tax rates 2020
When hiring an employee in the UK it is the legal responsibility of employers to complete payroll duties.
Most UK based companies process their payroll using the PAYE system offered through HMRC, which deducts National Insurance and Income Tax directly from employee wages. PAYE payroll runs from the 6th to the 5th of the following month.
The employer must calculate their employee’s tax and National Insurance contributions and issue staff with payslips in either paper form or electronic copies supplied online and make an FPS report to HMRC each month on or just before payday.
Companies with international employees must ensure they remain compliant with the UK’s tax laws. Residency status is important here. Non-residents pay tax only on income earned within the UK, and UK residents must pay tax on all UK income and foreign income.
International payroll providers, such as UnaTerra, offer the reassurance needed for global businesses to achieve compliance quickly while delivering pay seamlessly to their employees in all countries.
What is auto-enrolment?
Auto-enrolment is the process of enrolling employees into a qualifying workplace pension scheme if they are not already in one. All employers regardless of size were required to be involved in the scheme from October 2017.
What is PAYE?
PAYE is the Pay as You Earn system when you operate your payroll. You calculate the tax and National Insurance Contributions due on your employees’ earning. These payments are deducted at source and then paid directly to HMRC.
Do I need to set up a UK bank account for payroll?
Yes, it is mandatory to have a UK based business bank account to make payments to both employees, HMRC and other authorities.
What is the total cost of employment for hiring an employee in the UK?
The total cost of employment is typically between 1.25 and 1.4 times the employees salary.
UK employment law provides a robust framework within which the rights of both employer and employee can be assured. Whilst there is some uncertainty around the impact Brexit will have on employment law businesses are still required to comply with established laws and it is expected that most of them will remain the same after the UK finally leaves the EU.
When hiring UK employees the employer is required to supply full details of the employee to HMRC via their payroll system when they submit their RTI file.
When an employee leaves, the employer must complete a P45 form confirming:
Employees are entitled to Statutory Sick Pay (SSP) in the UK. SSP is paid to an employee that is unable to work because of an illness or injury. An employer must put their sickness policy in a written statement of employment particulars and a copy must be supplied to all employees who have worked for your company for at least a month.
SSP is paid to the employee at the same time and in the same manner as their wages would be paid for the same period.
Most UK employers are required to pay their employees holiday pay. Most employees will be legally entitled to annual leave and paid holidays. Usually, statutory paid holiday entitlement is 5.6 weeks, which works out at 28 days for a worker working a standard five-day working week.
Holiday pay entitlement can include public and bank holidays. Holiday pay entitlement for part-time workers is calculated on a pro-rata basis.
Employees that are expecting a baby may be entitled to Statutory Maternity Pay (SMP). SMP will replace normal earnings whilst the employee takes time off to have the baby and recover from birth. They will have the right to 26 weeks of Ordinary Maternity Leave and 26 weeks Additional Maternity Leave.
The amount of SMP paid will depend on how long the employee has worked for the company and their annual salary. SMP is counted as employee earnings, so will be subject to tax and NICs and will be deducted in the same way as their regular earnings.
An employee can be entitled to Ordinary Statutory Paternity Pay (OSPP) when their partner has a baby or they adopt a child. OSPP will replace normal earnings while the employee takes time off work to care for or support the child and mother.
OSPP payments will depend on how long the employee has worked for your company and their salary. OSPP payments are treated as earnings and will have tax and NICs deducted in the normal way.
Other than paid holiday leave, other types of leave can apply to employees in the UK. These include:
UnaTerra is perfectly positioned to help you navigate around the different types of leave and can assist with the setting up of your leave policies and processes.
Company employees are entitled to a full range of statutory employment rights and benefits, including certain rights during their employment, such as a right to a written statement of terms, statutory minimum payments in the event of illness and entitlement to some types of family-related leave.
Employees also have rights on employment termination, which includes the right to a statutory minimum notice period, and protection against unfair dismissal.
What is the standard working week in the UK?
The standard working week in the UK is Monday to Friday from 8 am or 9 am to 4 pm or 5 pm. Lunch breaks are usually one hour.
Can employment contracts be terminated at will?
All employees, with at least one month’s service, are entitled to receive a minimum notice of termination from their employer, which they are entitled to by law. However, an employee may be dismissed without any notice period if they have committed a serious breach of their employment contract, such as gross misconduct.
What are the common supplementary employee benefits in the UK?
Many top UK companies offer supplementary employee benefits which are offered at the discretion of the individual employer.
These can include company pension schemes, life assurance for death in service, accident insurance, private health insurance, employee assistance programmes, vehicle or travel allowance, relocation assistance, extra holiday leave for long service and income protection schemes.
The mental and physical well-being of staff is very important, so many top companies also offer related employee benefits in the form of staff mental health counselling services, gym memberships, healthy eating vouchers, and employee achievement rewards.
A new company formation in the UK is usually swift and trouble-free as long as you supply HMRC and Companies House with the correct information about your company.
Once you have chosen your company’s legal structure, you will need to register an official company address and choose an appropriate SIC code which helps to categorise your business. You will then need to register your company with Companies House where it will be added to the official register.
Corporation tax registration will usually happen automatically, but this can take up to a week following your registration. You will also need PAYE registration with HMRC to collect employee tax and NICs.
The whole process of setting up a limited company in the UK can be made easier with the help of UnaTerra, who can register your new company in the UK on your behalf.
It can take up to one week to set up a UK entity, this does not include VAT and other required registrations, which can easily be completed after the company formation process has been completed.
You will also need to register for VAT if your VAT taxable turnover goes over the current VAT threshold, which is currently £85,000, or you know that it will. Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
While it’s not legally required to have a UK bank account to set up a company, it can be helpful to have one for your PAYE system and to make your statutory payments easier and quicker.
You don’t need to live in the UK to register a company in the UK. The registration process is the same for foreign nationals as for residents living in the UK. You don’t need to live in the UK to become a company director.
However, your company will need to be registered with Companies House in England and Wales, Scotland or Northern Ireland, depending on the location of your company.
UnaTerra provides you with a single point of contact for finance, payroll, HR and legal support for your global operations. If you’re thinking about expanding into the UK get a free consultation with our experts today.