As part of the requirements of the rules a Sole Representative must set up a branch or wholly owned subsidiary of the parent company in the UK.
There are a number of factors to consider when deciding whether to operate a branch or a subsidiary.
Both entities must be registered with Companies House, be registered for PAYE, corporation tax and VAT (Where applicable).
The key factors to consider are accounting duties, taxation and legal obligations.
A branch, for example, must file accounts with Companies House for the branch as well as the overseas parent company. This can prove to be a cumbersome exercise and most businesses would prefer to file separate accounts for the parent’s company and the subsidiary. A subsidiary would only be required to file accounts for the business of the subsidiary in the UK.
From a tax perspective, a UK subsidiary would only pay taxes on profits generated by the UK subsidiary and a branch would pay taxes in the UK on the profits generated by the UK branch. In essence the same, but with different accounting requirements.
From a legal perspective, a UK subsidiary will have limited liability and does not bind the parent company into any contracts, whereas a branch is considered as one entity. Contracts entered into by the branch in the UK may be enforceable on the parent.
In most instances, a subsidiary is considered a better option
| BRANCH PROS | SUBSIDIARY PROS |
| Easier to wind up if the venture fails | Separate legal entity with limited liability that does not bind the parent company to any of its debts or liabilities |
| Any start-up losses of the UK branch might be available to the overseas parent company to set against home profits; | Only need to file accounts at Companies House for the subsidiary’s trading |
