What Directors of UK Subsidiaries Need to Know
Foreign-owned UK companies are often managed as part of a wider international group. The overseas parent may make strategic decisions, provide funding and appoint the UK directors.
However, being part of an international group does not remove the legal responsibilities of the UK company’s directors.
A UK director remains legally responsible for the company and must ensure that it complies with applicable UK company law, accounting, tax and filing requirements.
Directors can appoint accountants and other professional advisers to help with these responsibilities, but they remain legally responsible for the company’s records, accounts and performance.
Are Directors of Foreign-Owned Companies Different?
The legal duties of a director do not disappear because the company is owned by a foreign parent.
For example:
US Parent Company
↓ 100%
UK Subsidiary
The UK subsidiary is a separate legal entity. Its directors have duties to the UK company, even though the ultimate shareholder is overseas.
The directors must exercise their own judgement and cannot simply assume that responsibility belongs to the foreign parent.
The Companies Act 2006 requires directors to act within their powers, promote the success of the company, exercise independent judgement and use reasonable care, skill and diligence.
Key Responsibilities of a UK Director
1. Keep Companies House Information Up to Date
Directors are responsible for ensuring that required information is correctly filed with Companies House.
This includes, where applicable:
- Annual accounts
- Confirmation statement
- Changes to directors
- Changes to registered office
- Changes to shareholders or Persons with Significant Control
- Changes to company information
Annual accounts must generally be filed even if the company is dormant.
Using an accountant to prepare and file documents does not transfer the director’s legal responsibility.
2. Ensure Proper Accounting Records Are Maintained
A company must maintain adequate accounting records showing its transactions, assets and liabilities.
For a foreign-owned UK subsidiary, this is particularly important where there are:
- Intercompany transactions
- Management fees
- Intercompany loans
- Group recharges
- Foreign currency transactions
- Payments to the overseas parent
The directors should ensure that the accounting records are sufficient to support the company’s financial statements and tax returns.
3. Approve and Understand the Annual Accounts
Directors are responsible for the company’s annual accounts.
An accountant may prepare the accounts, but the directors should understand what they are approving.
This includes reviewing matters such as:
- Revenue and expenses
- Intercompany balances
- Loans
- Debtors and creditors
- Cash
- Corporation Tax
- Going concern considerations
The accounts must accurately represent the company’s financial position.
4. Ensure Tax Compliance
Directors are responsible for ensuring that the company meets its relevant tax obligations.
Depending on the business, these may include:
- Corporation Tax
- VAT
- PAYE
- National Insurance
- Employer obligations
- Withholding tax
- Other applicable UK taxes
Professional advisers can prepare calculations and returns, but the directors remain responsible for ensuring that the company complies with its obligations.
5. Act in the Company’s Best Interests
A director’s responsibility is not simply to follow instructions from the foreign parent.
Directors must exercise independent judgement and act in accordance with their duties.
The Companies Act 2006 requires directors to consider, among other matters, the long-term consequences of decisions, employees, business relationships, reputation and the interests of shareholders.
This can be particularly relevant where the interests of the UK subsidiary and its overseas parent are not identical.
6. Manage Conflicts of Interest
Foreign-owned companies may have transactions between the UK subsidiary and its parent company.
For example:
- Management fees
- Loans
- Interest
- Asset transfers
- Service agreements
- Group cost recharges
Directors should identify and properly disclose any personal conflicts of interest.
A director should not use their position to obtain an improper personal benefit.
7. Monitor the Company’s Financial Position
Directors should understand whether the company can meet its financial obligations.
This is particularly important where the UK subsidiary:
- Is making losses
- Depends on funding from its foreign parent
- Has significant intercompany debt
- Has overdue creditors
- Is experiencing cash-flow problems
If the company becomes insolvent, directors’ responsibilities change significantly and the interests of creditors become a central consideration.
What If the Foreign Parent Gives Instructions?
A foreign parent can obviously provide strategic direction to its UK subsidiary.
However, a UK director cannot simply argue that they were “following the parent’s instructions” if those instructions result in a breach of their legal duties.
Directors must continue to exercise independent judgement.
For example, if a parent company asks the UK subsidiary to make a payment that the director believes would breach UK law, the director should obtain appropriate professional advice and consider their own legal responsibilities before proceeding.
Does the Director Need to Be UK Resident?
Not necessarily.
A director of a UK company does not generally have to live in the UK.
However, the company itself must have an appropriate UK registered office address and must comply with UK company law and filing requirements.
For foreign-owned businesses, it is therefore possible to have directors who live outside the UK.
Can an Accountant Take Responsibility Away From the Director?
No.
A company can appoint an accountant to:
- Prepare accounts
- Submit tax returns
- Maintain bookkeeping
- Prepare VAT returns
- Assist with Companies House filings
- Provide tax advice
However, the directors remain legally responsible for the company.
This distinction is important:
Accountant: prepares and advises
Director: reviews, approves and remains legally responsible
What Happens If Directors Do Not Comply?
Failure to meet directors’ responsibilities can have serious consequences.
Depending on the circumstances, directors may face:
- Financial penalties
- Legal action
- Disqualification
- Personal liability in certain circumstances
- Liability arising from wrongful or fraudulent conduct
Directors are not normally personally liable for ordinary company debts simply because they are directors. However, personal liability can arise in specific circumstances, including certain misconduct or personal guarantees.
Directors and Insolvency
If a company becomes insolvent, directors must take particular care.
Their priorities can shift from the interests of shareholders towards protecting creditors.
Directors should consider whether the company can continue trading and should avoid actions that worsen the position of creditors.
Where appropriate, professional insolvency advice should be obtained promptly.
Practical Checklist for Directors of Foreign-Owned UK Companies
Directors should regularly check that:
- Companies House information is accurate
- Annual accounts are prepared and filed on time
- Confirmation statements are submitted
- Accounting records are complete
- Corporation Tax obligations are met
- VAT and PAYE obligations are addressed where applicable
- Intercompany transactions are properly documented
- Conflicts of interest are disclosed
- The company has sufficient funding
- The company’s financial position is monitored
- Professional advice is obtained when necessary
Frequently Asked Questions
What are the main responsibilities of a UK company director?
Directors are responsible for running the company, complying with applicable laws, maintaining appropriate records, overseeing accounts and ensuring required filings and taxes are dealt with correctly.
Do directors of foreign-owned UK companies have the same duties?
Yes. Foreign ownership does not remove the statutory duties of UK company directors.
Can the foreign parent make decisions for the UK subsidiary?
The parent can provide strategic direction as shareholder, but UK directors must still exercise independent judgement and comply with their legal duties.
Is a director personally responsible for Corporation Tax?
The company is normally responsible for its Corporation Tax. However, directors can potentially face personal consequences in specific circumstances involving misconduct or other breaches of their duties.
Does a UK director have to live in the UK?
No. Directors do not generally have to be UK resident.
Can an accountant take care of the director’s responsibilities?
An accountant can handle many administrative and compliance tasks, but the director remains legally responsible for the company.
Conclusion
Being a director of a foreign-owned UK company carries the same fundamental legal responsibilities as being a director of any other UK company.
The overseas parent may own the business and provide strategic direction, but the UK directors remain responsible for the UK company’s affairs.
The key responsibilities include:
- Companies House compliance
- Proper accounting records
- Annual accounts
- Tax compliance
- Independent decision-making
- Managing conflicts of interest
- Monitoring financial health
- Protecting creditors where insolvency arises
For foreign-owned groups, having clear communication between the overseas parent, UK directors and professional advisers can help ensure that the UK subsidiary remains properly managed and compliant.
How FKGB Accounting Can Help
FKGB Accounting works with foreign-owned UK companies and international groups on accounting, Corporation Tax, VAT, payroll, Companies House compliance and intercompany transactions.
We can support UK directors with the financial information and compliance processes they need to manage their UK subsidiary effectively.
To discuss your UK operations, book a meeting through our online calendar or contact us by email for a confidential consultation: David.levy@fkgb.co.uk
