CBW partner Robin Davis explores some key differences in the GAAP (Generally Accepted Accounting Principles) between the UK and the US. There’s no doubt that the UK represents a significant opportunity for many US firms, not just because of the domestic market, but because the country (and especially, London) is also well placed as a strategic starting point for expanding into the rest of Europe. However, many foreign firms will assume that UK GAAP (Generally Accepted Accounting Principles) are the same as those in the USA when actually there are some areas of significant difference. In our experience of assisting internationally owned firms to set up in the UK, it’s these assumptions, along with several other common ones, that create problems which could have been avoided. For this reason we advise any business entering the UK market to consider these key areas prior to finalising their arrival in the UK: Risk vs disclosure In the UK, it is common to choose your entity type for tax and liability reasons. However, what US companies don’t always appreciate is that entities limited by liability in the UK (including LLPs) come with disclosure requirements. These organisations need to file their information with Companies House and that information is publicly available – and yes, even to the IRS. Companies House will hold information on the company’s financial results, the personal details of the directors and shareholders and, in some cases, the earnings of these individuals and their connections to other group companies. USA accounting vs UK accounting Once the “risk vs disclosure” conundrum has been resolved, most firms will then consider the practicalities of running their accounts function. This is where some of the bigger problems arise as a direct result of a lack of appreciation for the differences between the USA and UK GAAPs. US companies would be well advised to consider a few key questions in this area. They are:
- Does your US accounting package cope with the UK reporting requirements, particularly VAT? Most packages do not.
- Are you (and your staff) fully aware of your UK reporting requirements which may include year-end accounts, audit, accounts and tax filing?
- Do your accounts people appreciate the difference between UK and USA GAAP? For example: in the USA, interest payments on property can be capitalised but in the UK they are expensed.
- Are your staff aware that they need to register to pay taxes including: PAYE (pay-as-you-earn), CT (corporation tax) and VAT (value added tax)?