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A flexible labour legislation is essential for promoting the creation of new businesses, the growth of established firms and the creation of career opportunities. European countries have distinctive employment law frameworks, yet still remain competitive for investors.
Our infographic on employing in Europe and its labour law sums up and compares working aspects in European countries such as: the Czech Republic, Hungary, Poland, Romania, Slovakia and the United Kingdom.
According to local legislation, there are two types of employment contracts: fixed-term and indefinite. In the case of fixed-term contracts, the law stipulates several conditions and restrictions.
The United Kingdom has no minimum or maximum duration for fixed-term employment contracts****
* A contract concluded after the maximum times of renewal will be automatically a contract for an indefinite period.
** Hungary: The duration of a fixed-term employment relationship may not exceed five years, including the duration of an extended relationship and that of another fixed-term employment relationship concluded within six months of the termination of the previous fixed-term employment relationship. A fixed-term employment relationship may be extended, or another fixed-term employment relationship may be concluded within six months from the time of termination of the previous one upon the employer’s legitimate interests. If the fixed-term employment relationship is extended or another fixed-term employment relationship is established within six months from the time of termination of the previous one and employment is provided in the same or similar position, no probationary period may be stipulated.
*** Poland: 2 years and 9 months pertains to the total duration of subsequent contracts.
**** Romania: A maximum of three successive fixed-term employment contracts may be concluded between the same parties. Successive contracts are those concluded within 3 months of the end of the fixed-term contract and may not last for more than 12 months each. As a result, the legal maximum duration of fixed-term contracts concluded between the same parties can be 60 months. This is theduration of the first 36 months contract, plus 12 months for each of the two successive contracts.
***** Slovakia: The total duration, including any renewals, cannot exceed two years.
****** United Kingdom: Typically, the duration is explicitly stated in the contract and can range from a few months to several years. Employers can renew fixed-term contracts, but after four years of continuous employment on a fixed-term contract, the employee automatically becomes a permanent employee unless the employer can justify not doing so. If the contract is not formally renewed but the employee continues to work past the end date, it may be implied that the contract has been extended on the same terms.
During the trial period, both parties can terminate the employment relationship without restrictions.
* Czech Republic: A probationary period may not be longer than one half of the agreed duration of the employment relationship and must be agreed in writing on the day of work commencement at the latest. During the probation period, the employer may not terminate an employment relationship within the first 14 calendar days of an employee’s temporary incapacity for work (quarantine).
** Hungary: The parties may stipulate in the employment contract a probationary period up to 3 months from the beginning of the employment relationship. If a shorter probationary period is stipulated, the parties may extend the probationary period – only once. The probationary period, even if extended, shall not exceed three months.
*** Poland: In Poland, it is concluded as a special employment contract for the trial period, which is concluded for a period not exceeding 3 months. With the reservation that it is concluded for 1 month – in the case of the intention to conclude an employment contract for a fixed period of fewer than 6 months, and for 2 months – in the case of the intention to conclude an employment contract for a definite period of at least 6 months and less than 12 months. The parties may agree that the contract is extended by the time of leave, as well as by the time of other justified absence of the employee.
**** Romania: Trial/probationary periods for short-term contracts may be agreed upon separately, based on contract length, as defined by law. There are also exceptions: the probation period is established depending on the category of employee, type of employment contract etc. For example, disabled employees have at least 45 working days; fixed-term contracts have a different probation period depending on duration etc.
***** Slovakia: A probationary period must be agreed upon in writing and included in the employment contract. For fixed-term contracts, the probationary period cannot exceed half of the contract’s term.
****** United Kingdom: The duration of the probation period is at the company’s discretion, but usually lasts 3-6 months.
Standard employment contracts*
Czech Republic
Working time: 40h/week
Overtime: 150h/year**
Hungary
Working time: 40h/week
Overtime: 250h/year***
Poland
Overtime: 150h/year****
Romania
Working time: 40h/week
Overtime: 8h/week*****
Slovakia
Working time: 40h/week
Overtime: 150h/year******
United Kingdom
Working time: 35-40 hours/week
Overtime: Uncapped (would be at company discretion)
* The exact conditions under which overtime can be performed, as well as the exact periods (per week, month or year) are specified in detail in all local legislation.
** Czech Republic: Overtime can be increased up to 416 hours/year if agreed with the employee.
*** Hungary: In addition to 250 hours, maximum 150 hours of overtime work can be ordered in a given calendar year subject to agreement between the employee and the employer in writing (voluntary overtime). The employee may withdraw from the agreement at the end of the given calendar year.
**** Poland: Overtime can be increased to 416 hours/year.
***** Romania: The rule is that the legal maximum working time cannot exceed 48 hours/week, including overtime. By exception, however, working time may be extended beyond 48 hours/week, provided that the average working hours, calculated over a reference period of 4 calendar months, do not exceed 48 hours per week. For certain sectors of activity, units or professions laid down in the applicable collective agreement, reference periods longer than 4 months but not exceeding 6 months may be negotiated.
****** Slovakia: Overtime can be increased up to 400 hours/year (employee consent needed).
Entitlement to annual leave or vacation is determined according to the time worked.
(”working” days/year)
Czech Republic: 20 days*
Hungary: 20 days
Poland: 20 – 26 days**
Romania: 20 days
Slovakia: 4 weeks/5 weeks****
United Kingdom: min. 20 days plus 8 bank holidays
(”working” days/year)
Czech Republic: approx.* 5 days (special employment conditions)
Hungary: up to 7 days depending on the number of children; up to 10 days depending on age
Poland: up to 9 days (5 days of care leave, 2 days of child care, 2 days off work due to force majeure)
Romania: minimum*** 3 days
Slovakia: Unpaid/paid leave by mutual agreement****
United Kingdom: at company discretion*****
* Czech Republic: Employees are entitled to 4 weeks of vacation in a calendar year. The law defines the entitlement to additional leave for certain demanding professions (in the length of the specified weekly working hours).
** Poland: 20 days – if an employee has been employed for less than 10 years, or 26 days if an employee has been employed for at least 10 years; 5 days/year/care for a family member for medical reasons, 2 days/year/care for a child, 2 days/year/force majeure
*** Romania: The law defines the entitlement to additional leave for certain categories of employees (e.g. employees working in difficult/dangerous/harmful conditions, blind employees, disabled employees, young people under the age of 18).
**** Slovakia: The minimum annual leave entitlement is 4 weeks. Employees aged 33 or over by the end of the year and those providing permanent childcare are entitled to 5 weeks of annual leave. If you start or stop providing permanent childcare during the year, you are entitled to a portion of the additional week based on the length of time you provided childcare.
***** United Kingdom: If entitled Statutory Maternity Pay (SMP) is paid for up to 39 weeks by the UK government, along with Statutory Sick Pay (SSP) for up to 28 weeks.
Termination without giving a reason by the employee is defined by local regulations. However, the length of the notice period depends on the circumstances of the termination of the contract.
* Czech Republic: The standard notice period is 2 months.
** Hungary: Standard 30 days. Where employment is terminated by the employer, the thirty-day notice period shall be extended by 5-60 days, based on the total previous employment period.
*** Poland: Agreements concluded for definite and indefinite periods: 2 weeks for termination after less than 6 months of activity, 1 month after at least 6 months, 3 months after 3 years; Probation period is not included in the calculation of notice period.
– Probation period: 3 working days if the probation period does not exceed 2 weeks; 1 week if the probation period is longer than 2 weeks; 2 weeks if the probation period is 3 months.
**** Romania: In case of resignation, the notice period is maximum 20 working days for employees in executive positions and maximum 45 days for employees in management positions. In case of dismissal, the employee is entitled to minimum 20 working days’ notice, regardless of whether the post is an executive or management post.
***** Slovakia: 1 month for termination after < 1 year of employment, 2 months for others; in case of termination due to dissolution or relocation of the employer, redundancy or health condition of the employee the NP is 2 months for employees with 1 – 5 years, 3 months for > 5 years of employment.
****** United Kingdom: At company discretion – normally 1-3 months depending on how long an employee has been in employment
Businesses are strongly drawn to the United Kingdom as it is one of the world’s top investment destinations known for its entrepreneur-friendly climate and favourable tax rates. The UK and London as a global business hub, rank among the most appealing corporate locations when considering expansion from the rest of Europe or globally. Having weathered the storm of Brexit, the attractiveness of doing business in the United Kingdom and this thriving market remains. The variety of sectors, such as energy, pharmaceuticals, healthcare, IT or fintech, have been flourishing despite COVID due to the UK’s accommodating approach towards foreign investments.
The oil and gas industry plays a central role in the United Kingdom economy. In addition, banking and insurance industry is considered one of the largest.
The strongest workforce in the United Kingdom is centred in the financial technology (FinTech) industry.
In the United Kingdom, one of the favoured investment incentives, aimed at stimulating investment by increasing income from it or reducing its costs, is provided in the form of tax reliefs. This is especially important when you consider doing business in the United Kingdom and wish to explore the incentives of the countries before entering the market.
The most common legal form for doing business in the United Kingdom is a private company limited by shares (or LTD in short).
The incorporation time for such a legal form of business usually takes up 3-5 hours, counted from when the necessary documentation is signed.
The fees related to establishing an LTD form of business are from GBP 50, if submitted online on Companies House or slightly more if you do it through a service provider.
For setting up a private company limited by shares, at least one shareholder is required. The LTD company is also required to have at least 1 director, who can be the same as the shareholder.
The official company register of United Kingdom is open to public and can be accessible at www.companieshouse.gov.uk.
The corporation tax in the United Kingdom from 19% to 25% for companies doing business in the United Kingdom and with profits over GBP 250,000 as well as the introduction of a small profits rate of 19% with effect from 1 April 2023. The small profits rate will apply to companies with profits of not more than £50,000, with marginal relief available for profits up to GBP 250,000.
The tax period in the United Kingdom is the accounting period.
The deadline for your tax return is 12 months after the end of the accounting period.
When doing business in the United Kingdom, a company is considered the UK tax resident if it is either incorporated in the UK or, despite being non-UK incorporated, the business of the company is centrally managed and controlled in the UK.
Companies doing business in the United Kingdom and with a taxable turnover of over GBP 90,000 must register for VAT. Registering time for the UK VAT can vary but can generally takes around four to six weeks.
There is no longer any non-resident VAT registration threshold, therefore foreign companies must register for UK VAT immediately, if they are providing taxable supplies.
There are rules to consider on some situations where a registration is permitted. Some common scenarios below would result in a requirement for a UK VAT registration:
There are three different levels of government where taxes may be paid to when doing business in the United Kingdom: the central government (HMRC), devolved governments (notably, Scotland), and local governments in the form of council taxes.
HMRC administers the following central taxes:
In the United Kingdom, the following individuals are entitled to work:
The next types of employment contracts are available for companies doing business in the United Kingdom:
Contract types and employers’ responsibilities can be accessible at https://www.gov.uk/contract-types-and-employer-responsibilities.
The personal income tax rates in the United Kingdom:
The tax period for personal income tax runs from 6th April to 5th April each tax year.
In the UK, the due date for the paper tax returns is the midnight of 31st October and for the online tax returns the due date is the midnight of 31st January.
An individual is considered as a tax resident in the UK when:
As a taxable income of an individual in the UK is considered:
The rate of the social security contributions paid by the employer in the UK is:
Health insurance paid by an employer in the UK is not covered by national insurance, unless covered by private healthcare, which is on an individual basis.
The rate of the health insurance contributions paid by the employee in the UK is the same as for the employer.
The main forms of legal entities in the United Kingdom are Private Limited Company (LTD) and Companies Limited by Guarantee. There are also 3 other alternatives for legal forms of business (Sole trader, Partnership and Limited Liability Partnership), but each has different tax and liability implications for owners and shareholders.
The following legal forms of legal entities exist in the United Kingdom:
The most common form of business in the United Kingdom is a Private Limited Company by Shares. An LTD cannot be created without at least one shareholder. Additionally, it should also have at least one director, who may be the same as the shareholder.
The initial share capital is usually less that GBP 100, and there is no minimum capital requirement (other than the requirement that at least one share be issued upon incorporation). Small and medium-sized private companies have the option of submitting modified (i.e., simplified) accounts at Companies House, rather than full accounts.
Companies Limited by Guarantee require at least one guarantor and a ‘guaranteed amount’.
Guarantors can be company members who play an important role in the company by controlling the organization and making critical decisions. They typically do not take profit from the company; instead, the funds are retained by the company or are put to other purposes.
Guarantors make a promise of an agreed amount of money to the company if it fails to pay its debts. This is referred to as a ‘guaranteed amount’. The full amount of their guarantee must be paid to the company.
This payment covers guarantors for situations such as the company being closed down. The guaranteed amount is not linked to how much the company is worth – you choose how much they pay.
In the United Kingdom, there are 3 basic business structure types, and each has different tax and liability implications for owners and shareholders:
If you’re a sole trader, you are an individual that is self-employed and runs your own company. All business profits are yours to keep after taxes have been paid on them. You’re fully responsible for any losses your company makes. You must also stick to certain rules when operating and naming your business.
In a partnership, you and your partner (or partners) each share responsibility for your business.
This includes:
Each partner pays taxes on their share of the business’s income, which is divided between them. However, a partner does not have to be an actual person. An example of a ‘legal person’ that can also be a partner is a limited company.
A Limited Liability Partnership (LLP) can be set up (or incorporated) to manage a business with 2 or more members. A member can be a person or a company, known as a ‘corporate member’. As in an ‘ordinary’ business partnership, each member pays taxes on their share of the profits but is not personally accountable for any debts that the company is unable to pay.
The most common legal form in use for running a business is the Limited Company. Companies are ‘incorporated’ to create an organisation with a separate legal personality. This indicates that the organisation is able to run business and enter into contracts under its own name. When registering under the Companies Act 2006, a company must have two constitutional documents:
The Memorandum, which outlines the fact that the original members (subscribers) desire to establish a corporation and consent to become its members. The Memorandum cannot be amended; and
and Articles of Association, also known as the Articles, which serve as a kind of contract between the company and its members. The Articles establish the company’s legally binding rules, including the framework for decisions, ownership and control. According to the Companies Act 2006, a company can draw up its articles to suit the specific needs of the the same company, provided it acts within the law.
A Limited Company is owned by its members, those who made investments in the business, and as the name implies they enjoy limited liability. That means, that the company’s finances are separate from the personal finances of their owners and typically, creditors of the business may only pursue the company’s assets to settle a debt. The owners’ private property is not at risk.
There are two mechanisms for company membership:
Company Limited by Shares – almost all companies fit into this category. Members of such organisation are referred to as shareholders since each one of them owns one or more shares in the company. Shareholders’ limited liability means that they may only lose the money they have already invested or promised to invest (amounts unpaid on shares).
Members of the Company Limited by Guarantee give a guarantee to pay a set amount if the company should go into liquidation.
Online registration for a Limited Company can take as little as 24 hours.
Due to the nature of the UK Limited Company, it should have one director and one shareholder (who can be the same individual) who are both at least 16 years old and liable for all company obligations. Additionally, the company needs to have a UK registered office address. These are the basic requirements that must be met in order for a foreign resident to register a UK company.
Since an offshore company is one that is not incorporated in the United Kingdom, it is not permitted to own a UK company even though it is permitted to operate within the UK and create subsidiaries in the UK. You can separately register a company as a non-British national if you own an offshore company.
| Financial year 2020 to 2021 | Financial year 2021 to 2022 | Financial year 2022 to 2023 | Financial year 2023 to 2024 | |
| Main rate | 19% | 19% | 19% | 25% |
| Small profits rate | n/a | n/a | n/a | 19% |
| Lower threshold | n/a | n/a | n/a | GBP 50,000 |
| Upper threshold | n/a | n/a | n/a | GBP 250,000 |
Corporate Income Tax is paid on profits from doing such business as:
In the United Kingdom, the tax period is the accounting period. The deadline for tax return filing is 12 months after the end of the accounting period.
The United Kingdom possesses an extensive network of Double Taxation Treaties (DTTs). Typically, unilateral relief is available to credit overseas taxes paid on non-UK source profits against the UK tax on the same profits. While relevant treaties may occasionally extend relief, their primary function for UK companies is to limit overseas Withholding Taxes (WHTs) that would otherwise be payable on passive income.
In the UK, a complex regime allows for ‘underlying’ tax relief concerning foreign dividends, permitting the alleviation of tax suffered at lower levels, especially when dividends flow to the United Kingdom through a chain of companies. However, this relief is applicable only when the dividend in question is subject to tax, limiting its scope as most foreign dividends are tax-exempt.
Various tax incentives are provided through enhanced tax depreciation allowances, known as capital allowances. These incentives may be tied to expenditure or the size of the company incurring the expenditure.
All businesses, regardless of size, can claim a 100% AIA on the first GBP 1 million (previously GBP 200,000 before January 1, 2019) tranche per annum of qualifying capital expenditure. This allowance is now permanent at GBP 1 million, but it is restricted to a single allowance for groups of companies or associated businesses.
Expenditure of a revenue nature on R&D related to a company’s trade is wholly allowable as a tax deduction. In certain cases, enhanced relief or a credit may be available, offsetting against R&D costs in the company’s profit and loss account. Expenditure of a capital nature on R&D related to a company’s trade is also wholly allowable as a tax deduction, with 100% capital allowances available.
Significant changes were implemented for accounting periods commencing on or after April 1, 2023. Companies must now pre-notify their claims, share specific information, and adhere to new criteria, including the inclusion of cloud and data costs as qualifying expenses. Pure math research is now eligible for R&D relief, particularly benefiting those involved in data science or artificial intelligence-based R&D activities.
Further substantial changes are set to take effect for accounting periods commencing on or after April 1, 2024, including the introduction of a new merged scheme, which combines SME and RDEC schemes, and revised rules on subcontracting and overseas costs eligibility. The landscape for claiming R&D relief is evolving, with a focus on supporting businesses engaged in innovative activities.
Certain companies incurring R&D expenditure are entitled to claim R&D tax relief. To qualify as an SME, a company must meet specific criteria, including having fewer than 500 employees, an annual turnover not exceeding EUR 100 million, or an annual balance sheet total not exceeding EUR 86 million. Enhanced R&D tax relief for SMEs involves a 230% deduction for qualifying expenditure.
SMEs with a ‘surrenderable loss’ may claim an R&D tax credit, typically arising from trading losses. The cash payment is a percentage of the surrendered losses, with rates changing over time. From April 1, 2023, higher credit rates will be available for R&D-intensive SMEs, emphasizing the importance of R&D in their overall business activities.
Large companies and SMEs with funded or subsidised R&D expenditure may claim relief under RDEC. The credit, payable at a rate of 20%, is brought ‘above the line’ and reflected in the operating profits of the company, similar to a grant. A merged scheme effective from April 1, 2024, will unify incentives for SMEs and large companies, introducing new rules and rates.
The merged RDEC regime will generate a gross taxable credit of 20%, with changes in the rate at which tax is deducted from the repayable credit for loss-making companies. Overseas costs restrictions and complexities in subcontracting rules are key aspects of the merged scheme.
Companies exploiting patents may benefit from a lower effective rate of corporation tax, with a rate of 10% for the tax year 2023/24. The Nexus scheme links IP income to R&D activities, aligning with revised OECD principles.
Deductions equal to 150% of qualifying expenditure on the remediation of contaminated or derelict land are provided. Special tax reliefs exist for certain expenditures related to UK film production, high-end television, animation, video games, theatres, orchestras, and museum and gallery exhibitions.
Changes have been made to UK creative industry tax reliefs, aligning them with R&D Expenditure Credits. A new Video Games Expenditure Credit (VGEC) and audio-visual expenditure credit (AVEC) replace existing reliefs, with different credit rates for film, high-end TV, video games, animated film, and children’s TV.
These changes aim to enhance support for the creative sector, introducing new credit rates, expenditure credits, and eligibility criteria. Transitional rules are in place for existing productions, ensuring a smooth transition to the new system.
It’s crucial for companies claiming creative tax reliefs to be aware of evolving rules and compliance requirements, including the submission of an online information form alongside tax returns.
| DisclaimerPlease note that our publications have been prepared for general guidance on the matter and do not represent a customized professional advice. Furthermore, because the legislation is changing continuously, some of the information may have been modified after the publication has been released. Accace does not take any responsibility and is not liable for any potential risks or damages caused by taking actions based on the information provided herein. |
The United Kingdom does not offer tax holidays or foreign investment incentives, emphasizing the importance of the outlined tax relief programs for businesses operating within its jurisdiction.
Hiring expatriates in the UK or sending UK-based employees overseas involves a new set of obligations for employers. To ensure compliance with tax regulations, our UK tax experts have gathered essential information on cross-border employment and expat tax in the United Kingdom. This will provide you with a basic knowledge about tax residency, personal income tax, social security and health insurance contributions or penalties for non-compliance.
Our local tax, payroll and labour law experts are here to help you – as an expat or an employer – to obtain essential expert advice, so that you can effectively address all the matters related to cross-border mobility in the United Kingdom and other locations globally.
An individual is considered a tax resident in the United Kingdom if:
If they have, or have had, a residence in the UK, for all or part of the year
If they spend at least 183 days in the UK during the tax year
If they work substantial number of hours in the UK
Tax period runs from 6th April to 5th April each tax year
The rate of social security contributions paid by the employer in the United Kingdom is:
In the United Kingdom, employers have the choice to provide health insurance to their employees. If an employer provides health insurance, the employee will be taxed on the benefit, either through the payroll or via the submission of a P11D at the end of the tax year.
The deadline for submission of the tax return will be on the 31st of January.
If you are required to submit a tax return and fail to meet the deadline for submitting it or paying your bill, you be a subject to a penalty. A late filing penalty of GBP 100 will be charged if your tax return is up to 3 months late and additional charges will apply if it’s later, or if you pay your tax bill late. Additionally, interest is also charged on late payments.
If you fail to make payments of social security contributions in time, interest charges will be applied as a result of the delay.
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