Since the first of January, 2021, the United Kingdom has sat outside the EU both legally and practically. As a consequence, any EU business that operates, or seeks to operate, in the UK must comply with UK, rather than EU law. In this article, we set out three benefits of engaging a Global PEO when doing business in the UK.
To read about the impact of Brexit on UK business operating in the EU see Five Ways Global PEO Can Help UK Firms After Brexit.
Hire globally in 24 hours with Horizons EOR services.
The Impact of Brexit on EU Enterprises
Brexit means that the UK now sets its own rules for doing business within its constituent countries. This means that EU businesses need to ensure that they are in compliance with UK rules when doing business there.
With the signing of the UK-EU Trade and Cooperation Agreement (the ‘free trade agreement’ or ‘FTA’), there are no tariffs applied to the import and expert of goods between the UK and the EU. However, other rules still do apply to the transfer of goods between the two countries. For example, customs forms must be filled out for the export of goods into the UK, and UK health and safety standards must be complied with (note, however, that Northern Ireland is a complicated case).
Brexit does not just affect the trade of goods, however: It affects the entire way in which businesses in the EU and the UK operate in the other jurisdiction. Here we explain how the use of a Global Professional Employer Organization (‘Global PEO’) can help EU businesses that seek to operate in the UK.
Global PEOs Mean No Company Set Up in the UK
Prior to Brexit, EU law (see, this case, for example), meant that many businesses were able to set up their legal entity, i.e., ‘incorporate’ in one country, while maintaining their head office in another. In this way, businesses could ‘exploit’ a more friendly tax and regulatory environment in another member state while, keeping their head office elsewhere. For example, it was reportedly very common pre-Brexit for businesses with a German head office to incorporate as a UK limited company.
After Brexit, UK companies will now be ‘third country-incorporated’ companies under EU laws. This means, in many cases, it will no longer be sufficient to have one ‘legal entity’ conducting business both in the UK and the EU: Businesses may need to incorporate across both countries in order to carry out standard business activities, such as hiring staff. For example, businesses operating in the Netherlands may need to set up a ‘Besloten Vennootschap’ (BV), or those operating in Germany may need to set up ‘Gesellschaft mit beschränkter Haftung’ (GmbH).
This can be an expensive and time-consuming compliance exercise.
There is another solution, however: Engage a Global PEO to hire your workforce in the UK. A Global PEO can recruit, hire and manage payroll for UK staff, in full compliance with UK law.
Engaging a Global PEO can negate the need to incorporate in the UK when seeking to do business there as it is the Global PEO, rather than the EU client enterprise, that is employing the local UK workforce.
Global PEOs are Global Mobility Specialists
Prior to Brexit, freedom of movement meant that, generally, EU businesses and their employees could travel to the UK without the need for visas or work permits. Now, in most cases, visas are required for conducting business on a longer-term basis in the UK.
In addition, engaging employees from the UK will generally involve using the new ‘skilled worker‘ visa process.
Global PEOs, as global mobility specialists, can ensure that your business has all the necessary visas and permits to operate in the UK.
Global PEOs Advise on Compliance Risks
Some EU enterprises may be tempted to engage contractors in the UK to carry out business on their behalf, rather than setting up an entity in the UK. This creates significant compliance risks. A Global PEO can provide compliance advice specific to your situation. Aside from the general compliance risks associated with operating in another legal system (such as having legally enforceable contracts in place), specific risks to UK contracting include:
- Permanent Establishment Risk
- Even if you haven’t incorporated in the UK, there is a risk that EU businesses engaging contractors will be creating a ‘dependent agent permanent establishment‘. This can occur when the engagement of a contractor in a country is classed as a ‘fixed place of business’, through which business is carried out. The consequence of permanent establishment is that it can result in corporate and value-added tax liability in the UK, even where your business is not incorporated there.
- To learn more about permanent establishment risk read What is Permanent Establishment and Why does It Matter?
- Employee Misclassification Risk
- This is the risk that an individual is engaged in the UK as a contractor, when the true nature of the relationship is one of employment. Some EU businesses, as they can no longer hire UK employees without going through a visa process, may be tempted to engage UK workers as contractors rather than employees. This ’employee misclassification’ which deprives tax authorities of payroll taxes, may result in significant backtaxes and fines for the company.
- To learn more about employee misclassification risk read What is Employee Misclassification?
