Setting up a UK subsidiary: The accountancy checklist for Indian businesses
Incorporating a UK company is straightforward. Getting the accountancy, tax, and compliance framework right from day one is less so. Here is what you need to do, and in what order.
Every week, Indian businesses incorporate new UK private limited companies at Companies House. The incorporation itself takes only a few hours. You file the Memorandum and Articles of Association. You appoint directors. You register a UK address. However, the weeks and months that follow determine whether the venture succeeds.
This checklist sets out the steps for setting up a UK subsidiary for Indian businesses. We have listed them in roughly the order you need to address them.
Before you incorporate
1. Decide on your structure
We have explored the branch versus subsidiary question elsewhere in our India–UK CETA content. For most Indian businesses with long-term UK plans, the private limited company structure is preferable. However, always confirm this with your advisers before filing.
2. Choose your accounting reference date
Your accounting reference date (ARD) is the date to which you prepare annual accounts. Companies House assigns a default ARD of the last day of the month of incorporation. However, you can change this. Many Indian businesses align their UK ARD with the Indian financial year end (31 March). As a result, this simplifies group consolidation. Importantly, think this through before your first accounting period begins. Changing the ARD later has restrictions.
3. Appoint auditors if required
Not all UK companies require a statutory audit. The exemption applies if your company meets two of three criteria for two consecutive years:
- Annual turnover of £15 million or less
- Balance sheet total of £7.5 million or less
- 50 or fewer average employees
These thresholds apply to financial years beginning on or after 6 April 2025. However, the exemption is not available if your company is a subsidiary of a non-exempt group. Therefore, many Indian-owned UK subsidiaries cannot rely on it. As a result, you should appoint UK registered auditors promptly.
Immediately after incorporation
4. Register for Corporation Tax
A new UK company must notify HMRC of its chargeability to Corporation Tax. Specifically, you must do this within three months of the start of your first accounting period. You register online with HMRC. Importantly, failure to notify on time can result in penalties. Therefore, registering early avoids any ambiguity.
5. Register for VAT if required
You must register for VAT once your taxable turnover in any rolling 12-month period exceeds £90,000. However, voluntary registration below the threshold is often beneficial. For example, it allows you to reclaim input VAT on early costs. Indian businesses supplying UK business customers often benefit from voluntary registration. This is because UK business customers can generally recover the VAT charged to them.
6. Open a UK business bank account
This sounds simple. Frequently, it is not. UK banks apply stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. This is especially true for foreign-owned entities. As a result, the process can take six to eight weeks. Some banks will also require extensive documentation about the Indian parent and its beneficial owners. Therefore, start this process early — ideally before or alongside incorporation. In addition, consider engaging an accountant or corporate services firm to assist with bank introductions.
7. Set up payroll if you have UK employees or secondees
Setting up a UK subsidiary for Indian businesses often involves transferring staff. If your company will employ or second staff from day one, register as an employer with HMRC. You must also set up a PAYE scheme before the first payment. Ideally, complete PAYE registration four to eight weeks before the first payday. Furthermore, you need payroll software compatible with HMRC’s Real Time Information (RTI) requirements. Under RTI, you must submit payroll data to HMRC on or before each payday.
In your first three months
8. Establish your accounting systems
Your UK subsidiary must maintain books and records that comply with the Companies Act. These records must support both the statutory accounts and the Corporation Tax return. If you do not have an in-house UK finance function, engage an outsourced provider early. As a result, you will prevent a backlog of unreconciled transactions building up in year one.
9. Document your transfer pricing policy
If your subsidiary trades with related parties, document a transfer pricing policy before transactions begin. Related-party transactions include charging arrangements with the Indian parent, intercompany loans, and goods transfers. Importantly, this does not need to be extensive at the early stages. However, it should record the nature of each related-party transaction. In addition, capture the pricing methodology and the arm’s length basis for that methodology.
10. Assess your R&D tax credit eligibility
If your subsidiary carries out qualifying research and development, assess your eligibility for R&D tax credits early. Qualifying activity might include new product development, software engineering, process innovation, or clinical trials. You can claim the relief in your first Corporation Tax return. Furthermore, retrospective claims are possible for up to two years. However, contemporaneous documentation is far easier when you build the habit from the start.
In your first year
11. Prepare and file your annual accounts
UK private limited companies must file their first accounts within 21 months of incorporation. After the first set, accounts are due within nine months of the ARD. The accounts must comply with UK GAAP. For most subsidiaries of Indian groups, this means FRS 102. Alternatively, you can elect to use UK-adopted IFRS. Importantly, your first accounts also determine your first Corporation Tax liability. Therefore, strong bookkeeping and a competent accountant directly affect your bottom line.
12. File your first Corporation Tax return
You must file your Corporation Tax return (CT600) within 12 months of the end of the accounting period. However, any tax due must be paid earlier — within nine months and one day of the period end. For some companies, quarterly instalment payments apply instead. For most newly established Indian subsidiaries in year one, the nine-month rule applies. Nevertheless, plan for this in your cash flow forecasts from the outset.
The cost of getting it wrong
Late filing penalties at Companies House start at £150. Furthermore, they escalate rapidly for persistent late filing. HMRC penalties for late filing and late payment can quickly exceed several thousand pounds. More significantly, structural decisions made wrongly in the early months have lasting consequences. For example, the wrong ARD, a missing transfer pricing policy, or a failure to register for VAT voluntarily can take years to unwind. In addition, they often involve material adviser fees to remediate.
How we can help
The checklist above is a starting point, not a complete guide. Every business is different. Therefore, the right approach depends on your sector, size, and plans. However, one thing is universal across setting up a UK subsidiary for Indian businesses. The cost of professional advice in the first weeks is almost always less than the cost of remediation later.
If you are planning your UK launch, or you have just incorporated, get in touch. Our specialists guide Indian businesses through every step of UK market entry. We cover entity structuring, tax registration, VAT, payroll, R&D claims, and ongoing compliance. Through Ecovis International, we also support you in India, the UK, and over 90 other jurisdictions.
