EOR vs Setting Up a UK Entity: Which Is Right for Your First UK Hires?

An employer of record lets you employ people in the UK straight away, without a UK company, because the EOR is the legal employer. A UK limited company makes your business the employer, but needs incorporation, HMRC registration, insurance, banking and ongoing accounting. For a few hires an EOR is usually simpler; for a growing team, an entity often wins.

What does setting up a UK entity actually involve?

Incorporation is the quick part. What takes time is everything you need to do before you can lawfully pay someone, and then keep doing every year. Here is the full list.

1. Incorporate the company at Companies House

GOV.UK’s guide to setting up a limited company lists what you need:

• At least one director (a company secretary is optional)
• At least one shareholder for a company limited by shares
• Details of anyone with significant control over the company
• A memorandum and articles of association, and a statement of capital
• A company name that meets the naming rules
• A registered office address in the UK, which must be an official address for the company
• A SIC code describing what the company does

If the parent is overseas, the UK company is usually a subsidiary owned by the parent, and the parent’s people with significant control need to be identified.

2. Set up Corporation Tax

A UK limited company must pay Corporation Tax on its profits. GOV.UK explains that you can set up Corporation Tax when you register the company, or add it to your business tax account afterwards (Corporation Tax). You’ll then have annual accounts and a company tax return to file.

3. Register as an employer with HMRC

Before you can pay anyone, the company needs a PAYE scheme. GOV.UK says you must register as an employer before your first payday, but “you cannot register more than 2 months before you start paying people”. Your employer PAYE reference arrives by post, so build that into the timeline.

From then on, every payday the company must report pay to HMRC in real time, deduct income tax and employee National Insurance, and pay employer National Insurance (15% above £5,000 a year in 2026/27).

4. Get employers’ liability insurance

This is a legal requirement, not a nice-to-have. GOV.UK says most employers must have employers’ liability insurance from the moment they take on staff, with cover of at least £5 million, and that you can be fined £2,500 for every day you aren’t properly insured (employers’ liability insurance). The insurer must be authorised.

5. Open a UK business bank account

You’ll need one to pay salaries and HMRC in sterling. For a newly formed subsidiary of an overseas parent, bank onboarding checks can take time, so start early.

6. Set up a workplace pension

Every employer has automatic enrolment duties. You’ll need a qualifying pension scheme, and you must assess staff and pay at least 3% of qualifying earnings as the employer contribution.

7. Appoint an accountant and a payroll provider

Most overseas parents don’t run UK bookkeeping, payroll and tax filings in-house. Budget for an accountant for the company’s accounts and tax, and a payroll provider for monthly payroll, real-time reporting and pension submissions.

8. Keep it running

After set-up, the company has ongoing obligations every year: annual accounts and a confirmation statement at Companies House, a company tax return, payroll every pay period, pension re-enrolment, and keeping its registers and registered office up to date.

What does an EOR replace?

With an employer of record, steps 1 to 7 are already done by the EOR for employment purposes. It has a UK company, a PAYE scheme, insurance, a pension scheme and payroll in place. You sign a services agreement, the EOR issues the employment contract and runs the right to work check, and the person can start.

What an EOR does not replace is anything to do with your company’s own tax position. If your activities in the UK amount to a permanent establishment, that’s a corporation tax issue for your company regardless of who employs the staff. Read permanent establishment risk in the UK before deciding.

EOR vs UK entity: side-by-side

	Employer of record	Your own UK limited company
Who is the legal employer?	The EOR	Your UK company
Time before first hire can start	Usually short, once the contract is agreed	Incorporation, PAYE registration, bank account and insurance first
Companies House filings	None for you	Annual accounts and confirmation statement
Corporation Tax	Not created by the EOR arrangement itself, but PE risk can still apply	Company files its own Corporation Tax return
PAYE scheme	The EOR’s	Your company’s
Employers’ liability insurance	Held by the EOR	Your company must buy it
Ongoing cost structure	Service fee per employee plus employment costs	Accountant, payroll, insurance, bank, plus employment costs
Control over HR policies and benefits	Within the EOR’s framework	Full
Exit if the UK doesn’t work out	End the EOR arrangement	Close the company and its PAYE scheme
Best for	First hires, testing the market, speed	Established UK presence, larger teams, trading in the UK

How do you decide by headcount and timeline?

These are rules of thumb, not hard thresholds. Your sector, plans and tax position matter too.

Your situation	Usually best fit	Why
1 to 3 UK employees, start needed soon	Employer of record	No company to set up or run; the EOR is ready to employ now
1 to 3 UK employees, testing the market	Employer of record	Easy to stop without closing a company
A growing team, firm UK plans for the next few years	UK company with outsourced payroll	Per-employee EOR fees add up; your own company gives full control
UK staff will sign contracts or trade in your name	Speak to a tax adviser; a UK company is often needed anyway	PE risk doesn’t go away with an EOR
You need to sponsor visas	Check the sponsorship route before choosing	A sponsor licence is a separate Home Office process with its own duties; work out early which business will hold it
Start with an EOR, set up an entity later	Both, in sequence	Get people in post now and transfer them once the company is ready

The last row is common. An EOR gets your first people working while you incorporate, open the bank account and set up payroll at your own pace. When your company is ready, staff move across.

What about the costs?

We don’t quote our prices here, but the comparison is structural:

• With an EOR, you pay the employment costs plus a service fee for each employee. There’s no company to run.
• With an entity, you pay the same employment costs plus a set of fixed costs: accountant, payroll provider, insurance, banking, registered office and your own management time.

Fixed costs don’t grow much with headcount. Per-employee fees do. That’s why an EOR tends to be good value for a small UK team and an entity tends to be better value for a larger one. The crossover point depends on your fee quotes, so get both sets of numbers before deciding.

Next step

If you need people working in the UK before a company is in place, our UK employer of record service can employ them now. If you already have a UK company and want the payroll handled, see our payroll services. Not sure which? Talk to us.