Expanding your UK business to the UK, if done right, can open up a world of possibilities. In this day and age, it probably isn’t as hard to do as you’d expect.
However, there are nuances to accounting and differences in how accounts are drawn up when doing business in the USA – so much so that it makes sense to check on the key accounting differences before starting.
According to the U.S. Bureau of Economic Analysis, UK companies accounted for over $560 billion in direct investment in the USA up to 2022- which shows how widely business is done between the two countries, and it’s only expected to rise!
If you go about it in the right way, it can take your business to heights you would never have thought.
Different Country: Different Standard
In the UK, businesses follow the UK Generally Accepted Accounting Practice (UK GAAP) or International Financial Reporting Standards (IFRS), depending on their size and listing status.
In contrast, the U.S. mainly uses U.S. GAAP, which can differ in areas like revenue recognition, inventory costing, and leasing. While both systems aim for transparency and consistency, certain items may be categorized or valued differently.
If you plan to keep an American subsidiary or branch, hiring accountants familiar with both UK and U.S. standards can save time and avoid costly errors.
Certain accounting firms only operate in the UK, or the U.S. – while some are open in both countries meaning they have a better grip on the key differences.
Accrued Expenses: Understanding the Variances
Accrued expenses are a troublesome area for UK businesses operating in the U.S.
In the UK, these expenses often fall under the broad concept of “accruals,” covering any cost recognized before payment is made – just like unpaid invoices or pending utility bills.
While a similar principle applies in the U.S., U.S. GAAP can demand more detailed reporting for certain types of accrued liabilities, such as payroll taxes or short-term obligations related to ongoing projects.
It can be really helpful to check an accrued expenses example to help get your head around the concept too. Here are a few examples of accrued expenses to help you out:
Examples of Accrued Expenses
- Unpaid Utilities: If you operate an American office and receive a utility bill (like gas or electric etc) at the end of each month but pay the following month, you must record this amount as an accrued expense on your books.
- Employee Bonuses: Bonus payments that have been approved but not yet disbursed also need to be recognized in the correct accounting period.
- Professional Services: Legal, consulting, or marketing fees for which invoices haven’t been fully settled should appear in your accrued expenses.
- Rental Expenses: If your U.S. office lease is invoiced quarterly, you’ll accrue for the portion that has elapsed but remains unpaid.
In a 2023 Cross-Border Financial Compliance Survey, 42% of UK-based companies expanding to the U.S. said they underestimated the complexity of American accrual accounting – this shows that accrual accounting can trip accountants and business owners up when doing business in the USA.
Functional Currency
Remember, your functional currency will likely be in GBP but you could potentially consider changing to USD if the US market or your US client base is much larger.
This helps account in the USA for sure and you don’t have to mess around with foreign exchange transactions or swaps. It all depends on how you’re going to do business.
Key Accounting Tips for Streamlined U.S. Accounting
While learning the ropes of American financial protocols can feel daunting, these practical measures can keep you on track:
- Consult Dual-Qualified Accountants: Look for professionals certified in both the UK and the U.S. to bridge any knowledge gaps. This can be hard if you haven’t got an open-ended budget because they tend to charge more.
- Set Clear Reporting Timelines: Deadlines differ! Ensure timely data delivery to meet both UK and U.S. filing deadlines.
- Leverage Automated Tools: Cloud-based accounting software can help manage multi-currency transactions and dual ledgers more efficiently.
- Stay Updated on Tax Regulations: Federal, state, and even local taxes in the U.S. can evolve quickly, requiring regular reviews.
- Document Everything: Keep meticulous records—auditors on both sides of the pond will want evidence for every key transaction.
By implementing these suggestions, you’ll better manage the dual requirement of meeting U.S. GAAP standards while maintaining consistency with your UK books.
Managing Transfer Pricing and Intercompany Transactions
If you plan to sell goods or services between your UK head office and a U.S. subsidiary, understanding transfer pricing rules is paramount.
Transfer pricing involves setting prices for cross-border transactions to ensure each entity pays fair taxes in its jurisdiction.
The U.S. Internal Revenue Service (IRS) and HM Revenue & Customs (HMRC) both closely scrutinize these dealings for consistency and fairness.
While a formal transfer pricing study can seem expensive, it often proves more cost-effective than handling potential fines or disputes later.
A 2022 Global Tax Compliance Survey found that 35% of midsize enterprises faced regulatory reviews related to intercompany pricing, a stark reminder of the need for thorough documentation and policy alignment.
Cultural and Business Landscape Differences
Remember that the U.S. is huge with a diverse population. Business etiquette, consumer preferences, and even operational costs can change between states.
While regions like California or New York may offer sizable markets, they also come with higher operating expenses and more stringent regulations. Meanwhile, Southern states can be more cost-effective but may require robust marketing efforts to capture local clientele.
A 2022 Business Expansion Report showed that 59% of UK companies expanding into medium-sized American cities found it easier to establish brand loyalty—a reminder that sometimes, targeting smaller markets first can pave the way for sustainable growth.
Make sure you’ve got your marketing glasses on and that you’re tuned into the local area to ensure those marketing efforts will work – perhaps engage a local marketing agency to help.
To Finish
Moving a UK business into the U.S. involves reconciling not just currency and language differences, but also distinct accounting standards and practices around expenses—especially accrued expenses.
With the right accounting tools, dual-qualified expertise, and solid operational strategies you can launch effectively and without worry.
Ultimately, investing in compliance and local insight early on can yield long-term dividends which will set your business off correctly when trying to forge ahead in the largest economy in the world.
