Acquihiring in the UK: what US tech companies must know to acquire top tech talent

The number of US tech companies acquihiring in the UK is rapidly increasing, but cross-border acquisitions bring added complexity. To succeed, effective acquihire strategies for US companies are essential.

What is acquihiring?
Acquihiring generally refers to the acquisition of a company primarily to hire its employees rather than to gain its products or services. Acquihiring can also refer to the hiring of a team of employees and the licensing of the target company’s intellectual property (IP). The strategy, particularly popular in the tech sector, allows larger firms to quickly secure skilled teams. By acquihiring, companies can bypass traditional recruitment challenges and acquire a pre-existing team that has already demonstrated both technical expertise and cohesion.

UK tax implications of acquihiring
When US tech companies engage in acquihiring in the UK, they must navigate the UK tax landscape. Unlike traditional acquisitions, acquihiring often focuses more on acquiring employment arrangements rather than business assets. This can trigger various tax liabilities, which can include the requirement to withhold tax under payroll on proceeds, complex employment-related security reporting requirements together with impacts on corporate and other taxes.

Understanding the nuances of UK tax regulations is critical. For example, while the acquisition may involve the transfer of assets and employment contracts, it’s crucial to be aware of PAYE (pay as you earn) requirements, national insurance contributions and VAT considerations. Seeking advice from UK tax experts will ensure compliance and help avoid costly pitfalls, especially when negotiating compensation packages, stock options and incentives for the newly acquired team.

US employment law vs UK employment law
Acquihiring across borders brings another layer of complexity – navigating the differences between US and UK employment law. While the goal is to retain talent, companies must adjust to the UK’s more stringent regulations surrounding employee rights and workplace protections.

For example, employment contracts, redundancy rights and notice periods in the UK are often more formalised and employee-friendly than in the US. Additionally, while the ‘at-will’ employment doctrine is common in the US, it does not apply in the UK. Depending on the nature of the transaction, US companies may also need to comply with the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), which protect employee terms and conditions during business transfers.

Understanding these differences and the employment statuses of the individuals engaged by the seller is key to ensuring a smooth transition and mitigating any potential legal risks when acquiring a UK team.

Corporate law differences: how acquihiring in the UK differs from US practices
The corporate legal environment in the UK differs significantly from the US, which has implications for acquihiring transactions. One key difference is the process of due diligence. UK regulations demand more detailed reviews, especially concerning IP and employment contracts. Ensuring that IP ownership is clear is essential when the acquired talent has contributed to innovative projects.

Additionally, contract law, non-compete clauses and severance agreements are handled differently in the UK. The enforcement of non-compete agreements, for instance, tends to be more restrictive under UK law compared to US practices. Understanding these differences will enable US companies to structure their acquihires effectively, ensuring compliance with UK corporate law while protecting their business interests.

Ready to acquihire in the UK? Get expert guidance
Navigating the complexities of acquihiring in the UK requires expert knowledge of both tax and legal landscapes. Whether you’re dealing with cross-border employment laws or managing corporate compliance, ensuring a smooth process is key to retaining top talent and avoiding costly mistakes.

For tailored advice on strategies for US companies and how your company can successfully acquihire UK tech talent, contact our team of UK tax and legal experts today. We’ll help you develop a clear, compliant strategy that maximises the value of your acquihire while protecting your business interests.