If you’re expanding into the UK, a subsidiary is often the fastest way to start trading while managing risk. It does mean creating a new UK legal entity, with duties for directors and UK-specific laws, taxes and filings, so it pays to know what’s involved.
This guide is for overseas founders, finance directors and in-house legal teams. You’ll learn how UK subsidiaries work; when to choose a subsidiary over a branch, how a subsidiary works, what to include in key contracts and governance documents and which filings and taxes to expect.
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Jump to:
- What is a UK subsidiary, and how is it different from a branch?
- Who is legally responsible for a UK subsidiary?
- Do UK directors need to live in the UK?
- What information about owners and controllers needs to be recorded?
- Do subsidiary companies need to be registered?
- How is a UK subsidiary taxed?
- Hiring in the UK: do we need a sponsor licence?
- What governance documents are recommended?
- What intra-group contracts should we use?
- Are there any other UK-specific compliance issues?
- Common mistakes when launching a UK subsidiary (and how to avoid them)
- Ready to expand into the UK?
What is a UK subsidiary, and how is it different from a branch?
A subsidiary is a separate UK company (usually a private limited company) that is controlled by the parent business. The subsidiary has its own legal identity - it signs its own contracts, employs its own staff and is responsible for its own debts.
A branch, sometimes called a UK establishment, is not a separate entity. It is simply your existing overseas company operating within the UK. This means any UK-related liabilities flow directly back to your parent company. Companies House uses the term “UK establishment” and has its own registration and filing requirements for branches.
A subsidiary is typically the best choice when you want to limit your exposure to risk, make it easier to hire local staff, sign contracts, or get certain UK-specific licences and permits. A branch might be suitable if you just want to test the market with a small team and don’t need to separate legal liability – but your parent business will remain responsible for any UK-side issues and pay UK tax on local profits.
A quick sense check: If you are hiring UK staff, signing UK leases, or need a sponsor licence, a subsidiary is usually the simplest route.
Who is legally responsible for a UK subsidiary?
Directors are responsible to the UK company itself, not the parent business. The Companies Act outlines general directors’ duties such as acting within their powers, promoting the company’s success, exercising independent judgment, and avoiding conflicts of interest. You need to set up your governance so that directors can meet these responsibilities.
It is important to avoid shadow director risks. If parent company executives routinely direct the UK board and the board generally follows, those individuals can be treated as ‘shadow directors’ and pick up certain statutory duties and liabilities. Keep control mechanisms in shareholder-level documents (for example, reserved matters) and let the UK board actually run the business on a daily basis.
You can learn the basics in our guide to appointing a board of directors.
Do UK directors need to live in the UK?
No, there is no requirement for directors of a private UK company to be UK residents. You do need at least one real person as a director and a registered office address in the UK. However, having someone local can make it easier to set up banking and manage some practicalities.
What information about owners and controllers needs to be recorded?
You must identify anyone with significant control (typically: over 25% of shares or votes, the right to appoint/remove a majority of directors, or significant influence or control) and keep this information up to date with Companies House. From 18 November 2025 you’ll no longer keep your own PSC register (or registers of directors, directors’ residential addresses or secretaries) - you’ll file and maintain the information at Companies House instead. You must still keep a register of members.
Do subsidiary companies need to be registered?
Yes, subsidiary companies need to be registered at Companies House (or if they are to be registered in a different jurisdiction, at the companies registrar for that jurisdiction).
Recent changes under the Economic Crime and Corporate Transparency Act have introduced some new filings and checks:
- You now need to provide a registered email address (this is not shown to the public). New companies provide it when registering; existing companies update it with their next confirmation statement.
- Your registered office must be a real address (not a PO Box). Mail must reliably reach someone. Companies House can change your registered office or even close your company if you don’t meet this rule.
- From 18 November 2025, directors and people with significant control must verify their identity (existing directors confirm they’re verified at their next annual confirmation statement). If you do not verify, you will not be able to make filings and may be fined.
- Companies House is switching to software-only account filing and may soon require all small companies to file fuller accounts for transparency. Watch for government updates, as some points are still under review.
Top tip: If you are working to a tight timeline, verify the identity of your directors and significant controllers early to avoid delays with bank onboarding or company registration.
How is a UK subsidiary taxed?
The main corporation tax rate is 25 percent on profits above £250,000; a small profits rate of 19 percent applies up to £50,000, with marginal relief between. These limits are adjusted if you have associated companies in your group.
UK group companies can usually share losses between subsidiaries where they’re in the same 75% group. Intra-group transactions must be at market rates under UK transfer pricing rules.
The UK generally does not impose withholding tax on outbound dividends (note exceptions such as REIT property income distributions). A UK branch is taxed on UK profits (rates broadly align with company rates)
You must register for VAT when your UK-taxable turnover exceeds the threshold (currently £90,000 in any rolling 12 months) or earlier if you choose to register voluntarily. Register for PAYE before paying staff.
Hiring in the UK: do we need a sponsor licence?
If you want to employ people in the UK who are not settled or do not have the right to work, your UK business will usually need a Home Office sponsor licence before you can issue Certificates of Sponsorship. Make sure you account for processing times and HR compliance requirements from day one.
What governance documents are recommended?
- Articles of association that match your group policies (including board powers, conflicts of interest, and how decisions are made) - find out more in our guide to articles of association.
- Shareholders’ agreement with reserved matters, so parent control takes place at a shareholder level while UK directors remain responsible for the company. Read this useful FAQ explaining what to include in a shareholders’ agreement.
- Formal board protocols, to keep day-to-day company management with the UK board and strategic decisions with the parent.
- A company secretarial calendar to manage filings, accounts and other key events.
What intra-group contracts should we use?
At a minimum, most groups put in place:
- An intellectual property licence or assignment, so the UK company can use or hold group IP.
- An intercompany services or management agreement with clear scope and fair pricing.
- Data processing or sharing agreements, so personal information passing between group companies is properly managed under UK GDPR. If both companies are controllers, use a data sharing agreement. If one is processing on the other’s behalf, use a data processing agreement.
Are there any other UK-specific compliance issues?
The Register of Overseas Entities (ROE) applies where an overseas entity owns UK land directly. If the property is owned by your UK-incorporated subsidiary, the parent will not usually be within scope of the ROE.
Companies House now has stronger enforcement powers, including changing your registered address or closing your company for non-compliance.
ID verification for directors and PSCs goes live on 18 November 2025, so treat this as a key milestone in your compliance calendar.
Common mistakes when launching a UK subsidiary (and how to avoid them)
- Delays in opening a bank account. Start the “know your customer” process early and make sure director IDs match Companies House records, especially after new verification rules in November 2025.
- Errors with people with significant control (PSCs). Overlooking indirect control or special rights can lead to mistakes. Review your articles and shareholder agreements carefully.
- Confused governance. Avoid informal control by parent company execs – reserve certain matters in official documents, not in day-to-day management.
- Late VAT or PAYE registration. Some teams hire or invoice before these are sorted, so keep an eye on VAT thresholds and register for PAYE before staff are paid.
- Poor documentation of intra-group IP or data flows. Address this with clear licences, assignments and proper data agreements.
Example: A US parent insisted on signing off every UK sale above a small amount. The UK board just signed off whatever the parent said. In a dispute, it was argued the US execs were actually shadow directors. Properly drafted reserved matters and a clear board protocol would have avoided this risk.
Ready to expand into the UK?
Expanding into the UK involves key legal steps. Our UK expansion guide covers everything from contracts and IP to immigration and trade.
We can handle the full set up and ongoing running of your UK subsidiary - company formation, secretarial support, immigration and visas, employment law, tax registrations, and all required filings. We’ll help you create a clear plan with defined responsibilities and timelines, so you can grow with confidence.
If you’d like to understand more about the process, see our in-depth guide to setting up a UK subsidiary, or get in touch to discuss your plans.
