Tax · 6 min read

Do you already have a UK tax presence?

A UK permanent establishment is created by what your people do here, not by what you have registered. One employee closing deals from London can make the overseas parent liable to UK corporation tax — sometimes years before anyone notices.

What a permanent establishment is

UK law (Corporation Tax Act 2010, s.1141) and the UK’s tax treaties say an overseas company has a UK permanent establishment in two situations. First, a fixed place of business through which the business is carried on — an office, a warehouse, a workshop, and in HMRC’s view potentially an employee’s home if the company effectively uses it as its UK base. Second, a dependent agent: someone in the UK who habitually exercises authority to do business on the company’s behalf, typically by negotiating and concluding contracts.

What does not count

Activities that are preparatory or auxiliary do not create a PE: storing or displaying goods, buying goods, collecting information, market research, or a support function that does not itself sell. An independent agent — a genuine third-party distributor acting in the ordinary course of its own business — does not create a PE either.

The common ways it happens by accident

• A US or Indian SaaS company hires a UK sales lead who works from home in London and closes deals. Dependent agent PE from month one.
• A German manufacturer rents a small UK stock room and has a technician visit customers from it. Fixed place PE.
• A founder relocates to the UK and keeps running the overseas company from a UK flat. Fixed place PE — and possibly UK tax residence for the whole company through central management and control.
• A contractor engaged through an employer of record sells for you. The EOR employs them, but the PE test looks at who they act for, not who pays them.

What it means

The overseas company must register with HMRC for corporation tax within three months of the PE starting to trade, file UK returns and pay UK corporation tax on the profits attributable to the PE at the normal rates. If it has a physical place of business it must also register the UK establishment at Companies House within one month. HMRC can assess past years — four years as standard, six if careless, twenty if deliberate — with interest and penalties. In practice, groups often discover the position two or three years in, when a customer’s procurement team or a due-diligence process asks for the UK tax registration.

If you think you already have one

The order of work changes. Rather than incorporating a subsidiary and pretending the past did not happen, we establish when the PE began, what profit is attributable to it, and disclose to HMRC on the best available terms — then move the activity into a UK company going forward so the parent is out of the UK tax net. Voluntary disclosure before HMRC asks materially reduces penalties.

If you do not — how to keep it that way

Until the UK company exists, keep UK-based staff to preparatory and auxiliary roles, have contracts negotiated and signed by the parent outside the UK, and avoid a fixed UK place of business. Better still, form the subsidiary first: it takes 24–48 hours, and then the UK hire is the subsidiary’s employee selling the subsidiary’s services. That is the clean answer, and it is what most groups do once they have understood the risk.

This guide is general information for overseas businesses considering the UK, correct to the best of our knowledge at the date shown. It is not advice for your specific circumstances — rules and thresholds change. Check with us or HMRC before acting on it.