The United Kingdom remains one of Europe’s most attractive destinations for international business. London continues to lead in finance, technology and innovation, while cities such as Manchester, Birmingham and Edinburgh are developing strong business ecosystems of their own.
Yet entering the UK market requires careful preparation. Corporate structures, tax, payroll, employment and regulatory requirements can quickly add complexity.
Alexandra Hostert, Director and Head of Inward Investment at BDO, advises international companies on establishing and growing their UK operations. We spoke with her about the opportunities, common pitfalls and what businesses should consider when expanding into Britain.
What are the first strategic decisions international businesses should make before entering the UK market, and where do companies most commonly underestimate the preparation required?
It is important to prepare a thorough cost benefit analysis and for this it is important to be fully aware of the reasons for and potential benefits of a UK expansion and understand the costs involved in the different options to market.
One of the first decisions international businesses need to make is determining the most appropriate market entry structure. In practice, this often means deciding whether to establish a UK subsidiary or operate through a UK permanent establishment. The choice can have significant implications for taxation, governance, reporting obligations and long-term commercial objectives.
Where companies most commonly underestimate the preparation required is in the wider compliance framework that sits behind market entry. Incorporating a company is relatively straightforward, but businesses also need to consider Companies House requirements, corporation tax, employer registrations, payroll obligations, VAT requirements, employment tax compliance, accounting processes and ongoing reporting responsibilities.
The most successful expansions are those where businesses are well prepared, understand the compliance requirements and allow enough time for setting up the right structure for them.
From your experience, what are the biggest misconceptions foreign entrepreneurs have about doing business in the UK?
A common misconception is that because the UK is an open and business-friendly market, compliance requirements are relatively light. In reality, the UK has a highly developed regulatory framework and places significant emphasis on corporate governance, transparency and reporting. Companies must meet obligations with Companies House, HMRC and, depending on the sector, additional regulatory bodies.
Another misconception is that UK expansion can be approached in isolation. In reality, decisions around corporate structure, employee hiring, immigration, transfer pricing, VAT and accounting are often internationally interconnected. Choosing an advisor with significant international experience and a global network as well as early planning across all these areas can prevent costly restructuring later.
Setting up a company is only one part of market entry. Which legal, tax and regulatory challenges do international businesses most frequently encounter during the expansion process?
One of the most significant challenges is determining whether UK activities create a taxable presence or permanent establishment. Businesses can inadvertently create a UK tax presence through local personnel or certain business activities, which may trigger UK corporation tax obligations.
From a tax perspective, companies frequently encounter complexities around corporation tax compliance, transfer pricing, VAT registration and customs requirements. Transfer pricing is particularly important for multinational groups, as transactions between connected entities must be conducted on an arm’s-length basis and appropriately documented. Businesses also need to consider ongoing VAT compliance and, where goods are imported into the UK, the relevant customs requirements.
There are also ongoing compliance obligations such as filing statutory accounts, confirmation statements and potentially audit requirements depending on the size of the group.
London remains a global business hub, but regional cities are becoming increasingly attractive. Which locations outside London do you believe offer the strongest opportunities for international investors, and why?
The UK benefits from several highly attractive regional business centres. Manchester continues to attract significant investment due to its strong technology ecosystem, entrepreneurial culture and access to talent. Birmingham offers excellent connectivity and is a major hub for professional services and advanced manufacturing. Leeds has developed a strong reputation in financial services and fintech, while Edinburgh combines financial expertise with a thriving technology sector. The world-leading life sciences cluster of London, Oxford and Cambridge is often referred to as the golden triangle in that sector.
Access to talent, universities, infrastructure and sector-specific ecosystems is often more important than choosing the largest city.
Many international businesses are finding that regional hubs offer excellent opportunities while providing access to skilled workforces and competitive operating costs.
British business culture is often described as pragmatic, relationship-driven and internationally minded. How important are cultural understanding and local networks when building a successful business in the UK?
They are incredibly important. While the UK is one of the world’s most international business environments, trust remains central to commercial relationships. Businesses that invest in understanding local market practices, building relationships and developing strong professional networks are typically more successful over the long term.
Local advisers, industry associations, chambers of commerce and professional communities can play an important role in helping international businesses navigate practical challenges and accelerate market penetration.
Successful expansion is rarely achieved through compliance alone; relationships matter just as much.
Looking at current market trends, which industries or sectors do you expect to offer the greatest growth opportunities for international companies over the next five years?
The sectors I expect to remain particularly attractive include technology, life sciences, financial services and fintech and the broader innovation economy. I also see significant opportunity in sectors benefiting from the UK’s tax and innovation ecosystem, including businesses investing heavily in intellectual property, research and development and advanced technologies. The UK continues to offer incentives such as R&D tax relief and the Patent Box regime, which can support innovation-led growth.
In addition, sustainability, clean energy and businesses supporting digital transformation are likely to benefit from long-term structural trends shaping the UK economy.
Furthermore, as the world’s fifth-largest economy with a population of around 70 million, sectors such as retail and consumer brands, leisure and hospitality and manufacturing remain strong as well.
The UK tax system offers both obligations and incentives for businesses. Which tax reliefs, investment incentives or common compliance issues should international companies be particularly aware of before establishing operations?
The UK remains attractive because it combines a stable tax environment with several incentives designed to encourage investment and innovation. Examples include Research & Development Tax Credits, the Patent Box regime and investment incentives such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). Depending on the sector, businesses may also benefit from industry-specific tax reliefs.
On the compliance side, multinational organisations need to pay particular attention to corporation tax obligations, transfer pricing, VAT registration requirements and customs issues when importing goods into the UK. These are areas where overseas businesses often underestimate complexity.
Many international companies underestimate the complexity of employing staff abroad. What are the key payroll, tax and employment obligations businesses should understand before hiring their first employees in the UK?
Employing staff in the UK creates obligations across employment law, payroll, pensions, immigration and tax. Before hiring employees, businesses must conduct right-to-work checks and provide employees with the required written employment documentation. Employers must also register with HMRC as an employer, establish PAYE payroll reporting, issue payslips, make National Insurance contributions and comply with workplace pension auto-enrolment requirements.
Companies should also account for employment costs beyond salary, including employer National Insurance contributions, pension contributions and mandatory employer liability insurance.
Where international talent is involved, immigration compliance becomes an additional consideration. Businesses may require a sponsor licence and must comply with ongoing sponsorship obligations if they employ overseas workers requiring UK work visas. There are also additional tax considerations for internationally mobile employees.
Drawing on your experience at BDO, what are the most common mistakes you see international companies make when expanding into the UK, and how important is it to build the right advisory team from the outset?
Businesses sometimes focus on commercial opportunities without fully considering tax registration, payroll setup, accounting processes, reporting obligations, employment requirements and immigration considerations. These areas are all interconnected and should be addressed early in the expansion process.
This is why building the right advisory team from the outset is so important.
Having access to specialists across tax, accounting, payroll, employment, immigration and company secretarial matters allows businesses to enter the market with confidence and avoid costly issues later.
Finally, what is the single most important piece of advice you would give to an international entrepreneur or startup founder planning to expand into the UK?
The UK remains one of the most attractive destinations globally for investment and international growth. However, long-term success depends on having the right structure, understanding compliance requirements, establishing robust reporting processes and ensuring your people strategy is aligned with your business objectives.
Choose a structure that fits your strategic requirements and start planning early.
Businesses that invest early in planning, governance and local expertise are generally the ones that scale most successfully.
Thank you to Alexandra Hostert for sharing her insights and experience. Our conversation highlighted that successful expansion into the UK requires more than identifying market opportunities. From choosing the right corporate structure and navigating tax and regulatory requirements to hiring talent and building local networks, preparation is key. Her perspective shows that companies which combine early planning, local expertise and a clear understanding of the British business environment are best positioned to build a sustainable and successful presence in the UK.
- For further information about BDO, its services for international businesses and its expertise in supporting companies establishing and growing their operations in the UK, please visit BDO’s official website.
- Planning to establish a business in the UK? BDO’s guide to registering a UK business provides further insights into the key compliance, tax and reporting requirements international companies should consider when entering the market.
