The UK's coming exit from the European Union has made headlines for years now, and for good reason. Even apart from the EU, the UK is a powerful economy — the fifth largest in the world — and businesses operating there want to know how Brexit will affect them and what actions they need to take to prepare.
While Vistra has experts and resources to help organisations do just that — such as our action assessment checklist — this particular interview is not about Brexit. We believe that whatever the ultimate terms of Brexit, the UK will remain a critical destination for multinationals due to its large market, robust financial services sector, well-educated workforce, strong legal system and other factors.
In this interview, Vistra's Pete Doyle talks about his experiences helping companies expand into and operate in the UK. His lessons — learned over three decades — will remain relevant long after Brexit. He covers areas such as evolving corporate expansion strategies, the top risks of operating in the UK, and why complying with value-added tax requirements has an outsized importance for multinationals.
Pete is managing director of Vistra's Reading office in the UK. Early in his career, he trained as a chartered accountant with EY in their audit and business advisory group. In 1993, he cofounded Nortons, a firm of chartered accountants, which was acquired by Vistra in 2016.
What types of clients do you typically work with in the UK?
A large part of my team's client base are US HQ technology and life-sciences businesses. Start-up, VC-backed and recently IPO'd businesses are typical, although we also support elements of larger public companies. We also work with other international clients. A fair number of our tech clients are based in Israel, for example, especially those in IT security. We have a UK client base too, typically fast-growing owner-managed businesses, again with a bias towards technology but also engineering, consulting, retail and more. Interestingly, our largest current client is a division of an FTSE 250 PLC, a services business. We are helping them with their international expansion, and all the services we provide for them are outside of the UK.
What are some of the top reasons your clients expand into the UK?
International clients consistently tell us the UK is an important market in its own right, but it's also seen as a stepping stone into other territories. The financial services sector in London in particular is a large market for tech and IT security, big data and so on. NHS [the UK's National Health Service] is a draw for life-sciences businesses.
What markets do you typically see companies originating from?
The United States is still important for us, but through other Vistra offices we work with businesses based in Hong Kong, Singapore, Germany, Eastern Europe and elsewhere. We also have a good base of Israel-HQ clients.
Do you find that companies from certain countries more easily adapt to operating in the UK, either for regulatory or cultural reasons?
Interesting question. U.S. companies don't always adapt as quickly as they think they're going to. I think they often assume that operating in the UK is more or less the same as operating in the U.S., and they're not prepared for the differences, which can be significant. HR and employment regulations are very different for example, as are our data privacy laws. That said, the UK is generally a straightforward market for a new foreign business, and our job is to help them navigate any complexities that do come up.
Do your clients tend to send expats or hire locals when expanding to the UK? What are some of the benefits and challenges of each option?
I would say most of our clients set up by hiring locals — or at least people already based in the UK — typically sales people who establish the local market. They generally hire folks with a track record in their sector, and the UK has a good talent pool for this, including individuals with experience working with U.S. tech companies in the UK and the rest of Europe.
Occasionally, our clients do send expats to start off, but often there's a specific reason for that. Sometimes detailed product knowledge is needed which is only available in-house, or perhaps a founder or another valued employee wants to relocate to the UK for personal and professional reasons, so the relocation is a win-win scenario.
Obviously, there are immigration and tax challenges when you send an expat to establish your operations. Any organisation should know the full extent of those challenges and their related, often significant, costs before proceeding.
That said, the success or failure of the choice will largely be determined by commercial factors. For example: Does the individual know the market? Keep in mind that what worked in the U.S. may not work in the UK or Europe. We often see clients that successfully use (say) a direct sales strategy in the U.S. But when operating in the UK and Europe, they may need to work with channel partners to be successful.
How have perceptions of the UK as an international-expansion destination changed over the course of your career?
It's hard to say, that's probably a better question for our clients! I can say that when we started doing a lot of work with U.S.-based clients in the late 1990s and early 2000s, many of them saw the UK as a springboard to almost anywhere else in Europe and maybe even anywhere else in the world.
They came to us to help them set up fairly large teams in the UK, and those folks then travelled to other markets initially. They set up a traditional UK subsidiary and hired a European managing director, along with sales, support and marketing teams. These folks sat in an expensive office which was often fairly autonomous from the U.S. HQ. That's quite a big investment. Then they did the same in other key markets such as France, Germany and so on, and these groups may have been led by the UK hub.
Now I would say U.S. clients set up far more nimble operations, often virtual teams with small numbers of employees set up in different locations supported by far less infrastructure. I would say that today smaller companies go international, or maybe the same businesses do so at an earlier stage in the lifecycle. Technology allows them to operate with small teams, folks working from home or from small virtual offices.
Is the UK still the first target country for U.S. clients? Not always. Smaller clients now react to an opportunity to attract talent or follow a customer overseas without a great deal of strategic thinking, as there is a lot less heavy lifting involved, so they can set up anywhere when they see an opportunity.
How do you see trends changing in the next five to 10 years?
You like asking me these difficult questions! Given no one really knows what will happen post-Brexit I think I am in good company in not wanting to comment even beyond a few months. But I would guess the businesses I work with will have access to disruptive technology in the near future. As a result, they will be able to do a lot more overseas administration themselves.
However the old saying about rubbish in/rubbish out makes me think that the need for international support from specialists like Vistra could actually increase. Our clients will be able to use technology — including, say, AI — to do ever more complex things with less and less of their own infrastructure and perhaps far earlier in their lifecycle. Businesses will be global from day one. Those businesses will need our help — not least because the authorities looking after compliance, regulation and taxation will also have access to more and more data and will be able to follow our clients on their journeys more readily and challenge what they are doing.
Have you found there's one compliance area or consideration that businesses new to the UK often overlook during the expansion planning stages?
My clients are largely from outside the EU and usually do not think about VAT [value-added tax], and that can be a problem for them. Cross-border VAT depends on a lot of small details to work. Whether you're dealing with goods or services or technology IP, you must have a very close look at the planned transactions.
Often our clients don't really understand their own supply chain or T&Cs [terms and conditions]. You must understand, for example: Who is the importer of goods, you or your distributor? Who are the principals and who are the agents in a digital revenue share agreement? What are you selling online, a B2C service or a B2B platform for others to sell their service on? I have seen cases where a client's website says one thing and the real supply chain is different. A no-deal Brexit will make this even more interesting!
Finally, some of our tech clients are doing things that are new and disruptive, and so their business activities do not fall into existing models that tax authorities understand or accept. This kind of scenario is difficult if it means the business has to decide for themselves whether a particular transaction needs to carry VAT or not and whether it should be UK VAT or VAT from another jurisdiction.
Speaking of local experts, what are some of the other top challenges companies face when they expand to the UK?
I guess understanding that local regulations may be very different from home-country regulations, though that's true when expanding into any new country. Complying with local regulations in the UK is as I mentioned pretty straightforward when compared to many other countries.
Of course, those are all compliance challenges. There are other considerations, such as understanding local cultural norms in the workplace and appreciating commercial differences. For example, how do you adjust your home-country selling strategies to account for the realities of the UK market?
If you had to give some general advice to a company considering expanding to the UK, what would you say?
When dealing with a prospect, I first ask them what they're planning and what they want to achieve. Then I'll address some subjects — such as complying with certain UK tax, employment and immigration regulations — that I'm pretty sure they'll need to know about. Typically, this initial conversation needs to cover many commercial considerations as well, and then we home in on related risk areas.
These kinds of discussions go wrong when you just answer the questions you're asked. The smarter clients challenge us by asking, in effect, to tell them what they don't know. That's the right approach to take, and we'll make it happen no matter what the situation. It's our job to tell you what you need to know to succeed.
What's the most memorable thing someone has said to you about conducting business in the UK?
There are lots. I was asked once whether Paris was in London. It sounds funny, but if you put yourself in that client's shoes it isn't so strange. I can't remember, but let's say it was someone from a U.S. tech company whose market to date was hugely U.S.-focused, and that controller or CFO had never been to Europe. Why should they know where Paris is? The U.S. is big enough for anyone!
Let's face it, for years I thought Washington, D.C. was near Seattle (which is in Washington State, about 2500 miles away!) — so no different. In fact, this is an important lesson for international work: Do not assume people know stuff, ever. Their whole perspective and starting point is likely be very different from your own.
In your career, have you noticed a single great truth about how to operate successfully in the UK or simply how to operate successfully in another country?
From my world, get payroll right and get expert help with anything like VAT, GST, sales taxes etc.
Get payroll wrong and it is almost impossible to put right without a lot of pain for all. You'll upset a team of employees — never a good idea — and payroll tax penalties can often be substantial.
VAT and indirect taxes look deceptively simple but can go horribly wrong on a small detail, especially with cross-border transactions and in more complex areas such as financial services or real estate. The taxes involved are a percentage of revenue rather than profit (and so get very large very quickly) and are transactional, they're happening every day. So they are hard to fix later, unlike say income taxes that can be perhaps be put right with an annual filing. An accountant's answer for a single great truth: VAT! I don't get out much!
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