"Each time I must choose between you and Roosevelt, I shall choose Roosevelt."
This statement made by Churchill to de Gaulle, although somewhat prescient at present, is much more indicative of UK/US relations than his much repeated phrase of there being a “special relationship” between the UK and the US. The two countries have been tied intrinsically for centuries, but in recent history, those ties and relations have created a mutual trust and respect that has enabled a closer and deeper relationship far greater than ever before.
The benefit of such a trusting relationship is that it allows a freedom of trade unprecedented between any other countries. The UK and the US share the attitude of “put your money where your mouth is” and do so in abundance. The UK is the single biggest contributor of foreign direct investment in the US (approximately £28bn), and the US returns the compliment to the UK (approximately £11bn). This gives tangible proof to the intangible mutual trust that is felt by many who spend time in and with both countries.
This clearly gives rise to commercial opportunities for businesses to bear the fruits of their labo(u)r without having to worry if anything gets lost in translation.
However, a common theme I have found with many of these individuals and businesses I have helped over the years is that there can be a genuine misunderstanding and confusions with the “same” English language. So as a reference for all those Anglophiles and Yankophiles (sic) here’s a basic guide for an entrepreneur and/or privately-owned business to some fundamental differences in trading in the UK and the US.
- Public records – Companies House requires incorporated entities in the UK to publish much of the financial data of the business as well as personal details of the ultimate beneficial owner(s) as a matter of public record.
- IRS is king. Conversely, there is no organisation like Companies Hoiuse in the US and all financial and ownership data are retained by the Internal Revenue Service and kept out of the public domain.
- Statutory audits – All UK companies are legally required to have an audit unless specific exemptions apply. UK subsidiaries with an overseas parent established in the European Economic Area (EEA) may be exempt in certain circumstances. Therefore, UK subsidiaries of US parent companies require an audit. Failure to comply can be costly.
- State taxation – If it wasn’t already difficult enough tackling another country’s federal laws and regulations, when you trade with the US you also need to comply with each of the 52 states’ own individual taxation policies.
- Sales tax is not VAT – Broadly speaking, VAT is a recoverable tax for businesses in the UK, while ‘sales and use tax’ is a direct cost for a business.
- LLC v LLP v Ltd v INC – There are various different entities a business can use to operate in either country but do not assume that an LLC in the US is the same as a Ltd in the UK; or that a LLP in the UK is treated the same as an LLP in the US; sadly it’s not that simple.
- Employment rights – The UK has far-reaching protective rights for employees which can be alien to a US employer. However for a UK business, the US employment ‘at will’ principle is not as simple as some believe it to be.
If you’re engaging in trade between the UK and the US, it’s worth getting to know and understand the differences between the two countries’ laws and customs, and the terms above are a good place to start.
By Kevin Brown from US accountants CliftonLarson Allen, a member of Nexia International