EOR vs Entity Setup in the United Kingdom

If you’re planning to expand your business to the United Kingdom, you’re aiming to enter one of Europe’s most competitive and advanced markets. With a £2.56 trillion GDP and a skilled workforce of over 34.21 million, the UK offers huge growth opportunities, but also important strategic decisions to make.

A key consideration is whether to work with an Employer of Record (EOR) or establish your own local entity. An EOR makes it possible to hire talent quickly and stay compliant without creating a legal entity, which is ideal for short-term projects or market testing. Setting up an entity, however, gives you complete operational control and potential tax benefits, though it comes with higher upfront costs, longer timelines, and added compliance.

This guide breaks down both approaches, covering costs, timelines, compliance, and control, to help you choose the most suitable path for your UK expansion.

Introduction to Business Structures in The United Kingdom

The United Kingdom offers several business structures, each with distinct liability protections, tax treatments, and compliance requirements. Choosing the right structure affects your company’s director duties, shareholder rights, tax efficiency, and long-term strategy.

• Private Limited Company (Ltd): The most common choice for international businesses. Provides limited liability, requires one director and shareholder, and a £50 incorporation fee. No residency requirement for directors or shareholders and no minimum share capital make it highly flexible.
• Public Limited Company (PLC): Suited for larger operations seeking to go public or enhance credibility. Requires at least £50,000 share capital (25% paid upfront), two directors, and stricter compliance rules.
• Limited Liability Partnership (LLP): Combines partnership flexibility with liability protection. Requires two designated members responsible for compliance, ideal for professional services.
• UK Branch Office: Enables foreign companies to operate in the UK without creating a separate legal entity, but subjects them to UK liabilities and regulatory obligations.
• Sole Trader: Simplest option, registering directly with HMRC. It has a low compliance burden but offers no liability protection.
• Limited Partnership: Useful for investment funds, separating general partners (unlimited liability) and limited partners (investment-only).

Why Businesses Expand to the United Kingdom

The United Kingdom’s strong economic fundamentals and strategic global position make it a top choice for international expansion. With a GDP of £2.56 trillion in 2024, the UK remains Europe’s leading financial centre and an innovation hub. Despite Brexit, it continues to offer competitive regulatory frameworks, a robust business environment, and a gateway to global markets.

• Skilled Workforce: The UK serves as a gateway to Europe with excellent transport, logistics, and world-class infrastructure, facilitating access to major markets. London remains a premier financial centre with global connectivity and is a hub for technology and innovation corridors like the Oxford-Cambridge Arc and the Northern Powerhouse region. Enterprise Zones offer tax relief and government support in key growth regions.
• Financial Services Leadership: The UK boasts a highly skilled, diverse workforce fueled by world-leading universities, research institutions, and immigration policies that support the recruitment of global talent. High concentration of professionals in fintech, AI, healthcare, and creative industries supports innovation and competitiveness.
• Innovation Ecosystem & Market Access: The UK government sets aside a substantial budget for R&D tax credits and innovation funding. The total R&D tax credit budget for 2022–2025 is approximately £39.8 billion, marking the largest-ever investment by the UK government to foster innovation and support science and technology advancements.

The UK has over 70 trade agreements, including the landmark UK-EU Trade and Cooperation Agreement, providing extensive global market access, facilitating business expansion and trade.

• Government Support: Programs like the Global Entrepreneur Programme and Skilled Worker Visa attract international talent and innovation-focused businesses. Regional grants further reduce costs, especially outside London, making the UK highly appealing for growth-focused enterprises.

Employer of Record (EOR) vs Own Entity

These expansion approaches serve different strategic objectives and operational requirements. EOR arrangements provide immediate market access without legal entity establishment, while incorporation creates a permanent business presence with full operational control. The choice affects employment relationships, liability exposure, tax obligations, and long-term strategic flexibility.

• Employer of Record in the United Kingdom services handle legal employment responsibilities while client companies maintain operational management and strategic direction. EOR providers assume statutory compliance obligations, payroll administration, employment law adherence, and regulatory reporting across UK jurisdictions. This arrangement enables rapid hiring within 1-2 weeks without incorporation processes or ongoing entity management responsibilities.
• The Entity Setup Process involves Companies House incorporation, statutory registrations, and compliance framework establishment. For UK company incorporation, you can choose between standard processing, which may take longer, and expedited options for a much faster turnaround, potentially even same-day. Entity establishment provides complete operational autonomy, direct employment relationships, and strategic flexibility for long-term growth while requiring ongoing compliance management and reporting obligations.

Setting Up a Local Entity in the United Kingdom: Costs & Key Considerations

Establishing a local entity in the United Kingdom involves various costs and regulatory steps that depend on the company’s structure and scope of operations. Recent increases in Companies House fees reflect the government’s push for greater corporate transparency, while compliance obligations require ongoing investment in professional services and administrative support.

Key Costs

1. Incorporation costs vary by entity type and filing method:

• Company or LLP incorporation: £50 online/software, £71 by paper, with same-day services at £78.
• Additional fees apply for name changes, registering charges, and voluntary strike-off, ranging from £15 to £468.

2. Legal and Professional services:

• Many businesses use legal or formation agents for support, typically costing £200–£1,000, ensuring correct documentation and compliance during incorporation.

3. Ongoing compliance costs:

• Confirmation statements (£34–£62), annual accounts preparation (£300–£1,500), and ROE registration/updates (£234 online or £467 by paper).
• Data protection measures may add to costs, depending on business size and operations.

Local Requirements & Structure

• Minimum of one director (no residency restrictions) and one shareholder required.
• No minimum share capital, companies can incorporate with just £1.

Timelines

• Online registration: usually within 24 hours (delays possible).
• Postal registration: typically 8–10 days.

This structured approach ensures legal compliance and strategic flexibility while providing full operational control for businesses planning long-term expansion in the UK.

Partnering with an EOR in the United Kingdom: Costs & Key Considerations

Employer of Record (EOR) services offer a fast and compliant way to employ staff in the UK without the need to set up a local entity. EOR providers act as the official employer, handling complex UK employment law compliance, payroll processing, statutory deductions, and regulatory reporting, allowing your business to focus on managing operations and projects directly.

How EOR Works

EOR providers legally employ the staff while you maintain full operational control. Key services typically include:

• Employment contracts compliant with UK law
• Payroll processing, including tax and National Insurance contributions
• Pension auto-enrolment compliance
• Statutory sick pay and annual leave management
• Issuance of P45/P60 forms, RTI submissions to HMRC

However, recruitment, performance management, disciplinary actions, and strategic business decisions remain the client’s responsibility.

Advantages & Cost Overview

• Speed to Market: Hire within 2–4 weeks without incorporation delays.
• Compliance Assurance: Expert handling of complex obligations, including redundancy procedures and employment tribunals.
• Risk Mitigation: EOR assumes liability for statutory compliance and employment tribunal risks.
• Administrative Relief: EOR manages HMRC communication, statutory reporting, and payroll systems.

Cost Estimates

• Monthly Fees: Approximately £200–£600 per employe
• Setup Fees: Typically, no set-up fee is required
• Time to Market: Hiring within 5-7 days
• Included Services: Payroll, compliance, benefits administration, and employment contracts 

EOR vs Setting up Own Entity in the United Kingdom: Cost Comparison

Understanding the financial implications requires a detailed analysis of both immediate setup costs and ongoing operational expenses. The comparison below illustrates key cost differences between EOR services and entity establishment across multiple expense categories. These figures reflect current market rates and regulatory requirements for UK operations.

When to Use EOR vs When to Incorporate an Entity

The decision framework requires analysis of timeline requirements, team size projections, operational control needs, and long-term strategic objectives. Different expansion scenarios favour different approaches based on risk tolerance, compliance capabilities, and market commitment levels.

Use EOR if:

• Market Testing: Explore UK opportunities without long-term commitment or upfront investment.
• Urgent Timelines: Hire within days to meet client demands, seasonal peaks, or competitive moves.
• Small Teams (1–5 employees): Cost-effective specialised roles or short-term projects.
• Limited Compliance Expertise: Leverage EOR’s expertise in UK employment law, payroll, and statutory compliance, reducing legal risks.

Use Entity Setup if:

• Long-Term Growth: Establish a credible local presence for sustained market development and leadership.
• Large Teams (10+ employees): Entity setup becomes more cost-effective as team size increases.
• Full Operational Control: Direct control over employment terms, data, and HR policies without third-party limits.
• Strategic Partnerships: Required for banking, government contracts, or industry collaborations, preferring incorporated local entities.

Employer of Record vs Entity Setup: What’s Best for Your UK Expansion?

Choosing between an Employer of Record (EOR) and setting up your own entity in the United Kingdom depends on your expansion goals, risk tolerance, and operational needs. EOR offers fast, low-risk market entry, while entity setup suits long-term strategies with greater control and scalability.

Key Considerations:

• Risk & Compliance: EOR providers manage employment law liability and statutory compliance, reducing your risk but creating reliance on a third party. An own entity places full compliance responsibility in your hands, offering complete control over processes.
• Cost Comparison:  EOR typically costs £0 annually, whereas an entity setup runs around £3,000–£6,000 per year after incorporation. As team size grows, entity setup becomes more cost-effective.
• Strategic Flexibility: Owning an entity facilitates acquisitions, intellectual property management, and local partnerships, which EOR arrangements often can’t support.

How Commenda Simplifies Entity Setup in the United Kingdom

Setting up a local entity in the UK can be complex, but Commenda makes it simple and efficient. Our technology-driven platform handles everything, from Companies House filing and statutory registrations to ongoing compliance management, so you can focus on growing your business without getting bogged down in red tape.

Commenda covers incorporation services, including registered office provision, statutory officer appointments, and tax registrations like Corporation Tax, VAT, and PAYE. We automate routine compliance tasks, track deadlines, and send timely reminders, while offering expert support on regulatory changes and employment law.

With access to UK regulatory specialists and tax advisors, we help you structure your entity for long-term success and cost efficiency.

Book a free demo and see how Commenda accelerates your market entry with full compliance and expert guidance.

FAQs on EOR vs Entity in the United Kingdom

1. What is an Employer of Record in the United Kingdom?

An Employer of Record in the UK is a third-party organisation that becomes the legal employer for your workforce while you maintain operational control and management. They handle all statutory obligations, including payroll processing, National Insurance contributions, pension auto-enrolment, employment law compliance, and HMRC reporting requirements under UK legislation.

2. Is using an EOR legal in the United Kingdom?

Yes, using an EOR is completely legal in the UK. EOR providers operate under UK employment law and maintain all necessary registrations with HMRC, Companies House, and relevant regulatory bodies. They ensure full compliance with employment legislation, tax obligations, and statutory requirements while providing professional indemnity insurance coverage.

3. How long does it take to set up an entity in the United Kingdom?

Standard UK company incorporation takes 2-3 weeks through Companies House electronic filing. Same-day incorporation is available for a £100 premium fee when urgent timing is required. Complete operational setup, including bank account opening, PAYE registration, and insurance procurement, typically requires 4-8 weeks total.

4. What is the cost of using an EOR in the United Kingdom?

EOR services typically cost £200–£700 per employee per month, depending on service complexity. Basic packages range from £200–£400, while premium services cost £500–£700. Setup fees usually range from £500–£2,000.

5. Can an EOR hire contractors and full-time employees?

UK EOR providers focus on full-time employees under employment law. Contractors require separate legal frameworks due to IR35 regulations. Some EORs offer contractor management, but most specialise in permanent employment with full statutory benefits.

6. What are the tax implications of setting up an entity in the UK?

Corporation Tax is 19% on profits up to £250,000, and 25% above that. VAT registration is required for turnover over £90,000. Dividends may also attract personal tax liabilities.

7. EOR vs PEO: What’s the difference in the UK?

EORs act as the legal employer, assuming full employment liability, while PEOs create co-employment models. In the UK, EORs are preferred for international expansion due to clearer liability coverage and compliance support.