Permanent Establishment in the UK by Non-resident Company

A company not incorporated in the UK is classified as a non-resident company. Non-resident companies with UK-source profits are subject to UK corporation tax only if they trade in the UK through a permanent establishment (PE), and the profits are attributable to that PE.

Criteria for Permanent Establishment

There is a fixed place of business in the UK (e.g., an office, branch, workshop, or factory) through which the business is conducted.

An agent acting on behalf of the non-resident company has the authority to conduct business in the UK and does so habitually.

Obligations for Non-Resident Companies with a PE

If an overseas business has a UK PE, it must:

Register the PE with Companies House and HMRC.
Submit annual accounts and a tax return to these authorities.

Activities That Do Not Constitute a PE

The mere existence of a UK PE does not automatically result in taxable profits. The attribution of profits depends on the level and nature of activities conducted in the UK.

A UK PE does not exist if the activities conducted are considered preparatory or auxiliary. Such activities are those that are remote from the core business operations, making it difficult to allocate any profits to a fixed place of business.

If a company operates through an independent agent, there is no UK PE. An agent is deemed independent if they act in the course of their own business, akin to the distinction between employed and self-employed individuals. If contractors are classified as self-employed, they are likely considered independent agents, thus not creating a PE for the company.

There is no set minimum duration for a fixed place of business to be classified as a PE. However, generally, a place of business will not be treated as a PE if it exists for less than six months and is not a recurring location.

HMRC’s Perspective on PE

HMRC asserts that a non-resident company typically does not maintain a UK fixed place of business PE after a short duration, as a degree of permanence is required.

Additionally, the existence of a PE does not imply that significant profits are taxable in the UK. Profit attribution depends on the extent and significance of UK activities.