United Kingdom

Individual - Other issues

Last reviewed - 10 July 2020

Business entities

The principal forms of doing business in the United Kingdom are as follows:

Unincorporated businesses

'Sole traders' are self-employed individuals who are carrying on a trade. Whether a person is trading in comparison to making investments is not set out in the legislation and is the subject of considerable case law in the United Kingdom. There are 'badges of trade' that provide guidance to determine whether they should be taxed as running a trading business or simply making investments. As noted in the section on income tax, a sole trader is charged to income tax on their chargeable trading income along with their other sources of income.


A partnership exists if more than one person is carrying on a business with a view to making a profit. There is, however, no statutory definition of a partnership, and HMRC will look at the substance of the arrangement rather than the legal form. For tax purposes, a partnership is transparent and not an entity that is separate and distinct from the partners (but see limited liability partner below). Taxable profits are computed for the partnership and then allocated to the individual partners in accordance with the profit sharing ratio.

There are a number of different types of partner. Common examples are (i) full partner: also referred to as an 'equity partner' where the individual shares fully in the profits and losses of the partnership and takes an active role in running the partnership; (ii) salaried partner: a person who is held out to be a partner but is actually on a fixed salary rather than having the advantage/risk of a share in all the profits and losses; (iii) sleeping partner: a partner who takes no active role in the partnership but shares in the profits/losses; (iv) limited liability partner: a type of partner introduced in 2000 where the partnership itself is a separate legal entity and the partner's exposure to losses is limited.

A mixed member partnership is one that has individuals and companies as members. Anti-avoidance rules can apply if profits are being shifted into the corporate entity that would pay tax at lower rates than the individual. Similarly, there are provisions that prevent unjust allocation of losses to the individual instead of the company.


A company is a separate legal entity from the people who control it or work for it. A business run by an individual or partners (above) can be incorporated into a company at any time, and a completely different tax regime will apply (see the Corporate summary for more information).

Treatment of trusts

Trusts under English law have evolved over several centuries. They can be divided into 'express' trusts, which are expressly created by deed or will, and 'implied' trusts, which are imposed by law or equity. Express trusts are used by individuals for a wide range of purposes, including the control of the use and destination of property, provision for those incapable of holding property for themselves, provision of benefits to employees, and charitable and educational trusts. The tax treatment of trusts has undergone significant changes, and there remain few tax reasons for transferring property into non-UK resident trusts for UK resident and domiciled individuals. Non-UK resident trusts are, however, frequently used by non-UK domiciled individuals and they, however, continue to be used by UK resident individuals as a means to provide for children/grandchildren whilst retaining an element of control over the assets.

UK legislation currently provides a favourable regime for non-UK domiciled individuals setting up non-UK trusts with their overseas assets in that tax is broadly only due when payments/benefits are received from the trust. Capital payments, including benefits from non-UK resident trusts, are broadly matched to trust income and gains if the beneficiary is UK resident. The rules in connection with non-UK domiciled individuals and trusts were changed from 6 April 2017. The rules are very complex and specialist advice should be sought in this area.

Work permits

Unless an individual is a national of the European Economic Area (EEA) (excluding Bulgaria and Romania), they may require immigration permission before they can begin an assignment in the United Kingdom. The United Kingdom system contains five ‘tiers’ under which overseas nationals may obtain immigration permission to come to work in the United Kingdom. The most common category for assignees is Tier 2.

Under Tier 2, a sponsoring company in possession of a sponsorship licence will issue a ‘certificate of sponsorship’ to an assignee, and the assignee will then apply for entry clearance (a visa) to come to the United Kingdom to work for that company. In order to qualify under Tier 2 (intra-company transfer), which will mean that the UK company will not be required to show that it has searched for a suitably qualified worker for the role that the company wishes the assignee to undertake in the United Kingdom, the assignee must already have been working for the company for 12 months in another location. Entry clearance must be obtained before the commencement of one’s assignment from a British Embassy/Consulate in the assignee's country of residence. An individual will be refused entry to the United Kingdom if they do not have the appropriate documentation before travelling.

In recent years there have been major changes to the UK immigration system, including the imposition of certain restrictions to the Tier 2 (intra-company transfer) category and a quota on the Tier 2 (general) category, the category for individuals who have not worked for the company previously overseas or who have worked for it outside the United Kingdom for less than 12 months.

Expatriate issues

Complex statutory rules come into play whenever a mixed fund (i.e. an account containing more than one type of income or gains and/or in respect of more than one tax year) is used. Before becoming UK resident, an individual should consider establishing separate bank accounts outside the United Kingdom to segregate existing pre-assignment capital. In addition, an individual might establish different bank accounts for offshore investment income and earnings that arise after the individual has become UK resident, as this will help to identify the source of funds remitted to the United Kingdom and will help to minimise UK tax liability. As the mixed fund law is extremely complex, we recommend that specialist advice be sought in this area as early as possible.