When starting out in a new jurisdiction, many businesses assume it is easier to hire staff as contractors rather than direct employees, with the assumption being that it takes months to add a new direct employee to the payroll. But in the UK, it typically takes just one week to complete these registrations.
Also, from 6 April 2021, the UK rules around hiring contractors (often known as off-payroll workers) who operate via intermediary companies will change. Commonly referred to as IR35, these new rules may mean that you may have to withhold payroll tax and social security before paying the contractor.
You should assess your off-payroll workers in the UK, including those engaged via agencies or other third parties, to determine if the rules do apply. You should assess if the individuals would be considered a deemed employee in the absence of their intermediary, based on their working arrangements with you. If the IR35 rules apply to your workers and you do not comply, the UK tax authority could charge penalties for non-compliance as well as interest on the late payment of tax.
Depending on what role your contractor is performing, they may also create a permanent establishment of the parent company in the UK, which could lead to a corporate tax liability.
Also, if you are planning to offer stock options or any other benefits to your contractors, it will be hard to argue that they are not an employee.