How does permanent establishment risk work in the UK?

If you trigger PE, the UK gets the right to tax the profits attributable to that PE. You must:

• Register the foreign company for UK corporation tax via Form CT41G
• File annual UK corporation tax returns (CT600) attributing profits to the UK PE
• Maintain UK accounting records sufficient to support the attribution
• Pay UK corporation tax at 25% (main rate) on those attributable profits

The headline cost is the tax bill. The hidden cost is the administrative load: UK accounting books, transfer-pricing analysis between the UK PE and the rest of the group, and dealing with HMRC enquiries.

The OECD commentary and HMRC's INTM manual interpret fixed place as requiring three elements:

1. A place of business: premises, facilities, machinery
2. That is fixed: in a geographical location, with a degree of permanence
3. Through which the business of the enterprise is wholly or partly carried on

The bar for 'at the parent's disposal' is lower than most people assume. A regularly-used home office, a co-working desk used four days per week, or a hotel room used systematically for the same purpose can all qualify.

The activity exemption

Some activities do not count even if conducted through a fixed place. These are 'preparatory or auxiliary' activities and typically include storage facilities, purchasing offices, and information-gathering offices. The post-2017 OECD anti-fragmentation rules narrowed this considerably. HMRC now reads 'preparatory or auxiliary' restrictively.

Before 2017 you could argue 'our UK person does not conclude contracts; they negotiate and HQ signs.' Post-2017 that defence largely fails. If the UK person plays the principal role and HQ rubber-stamps, the UK person is the dependent agent.

What principal role looks like

• Pitching to UK prospects, presenting commercials, leading negotiation
• Setting terms or material commercial provisions that are not routinely altered by HQ
• Holding out as the customer's point of contact for contract-related questions
• Customer-facing job titles like 'UK Country Manager', 'Head of UK Sales', 'UK Director'

The independent-agent carve-out

The PE rules do not apply to agents acting in the ordinary course of their independent business. A genuine third-party UK distributor is not a dependent agent. An EOR is more debatable: Teamed Ltd is independent commercially, but the UK employee's working arrangement is with the foreign parent, not Teamed's own business operations.

The EOR helps in three ways:

1. The legal employer is a UK Ltd, so payroll, NIC, and employee-side taxes flow through a UK entity
2. The contract chain is 'parent to EOR to employee', not 'parent to employee', which gives some treaty-analysis room
3. EOR-employed UK staff do not hold formal authority on the parent's legal entity (they cannot bind the parent as a director or officer)

What EOR does not fix:

• If the UK employee functionally concludes contracts for the parent (presenting, negotiating, setting terms), the dependent-agent test still triggers
• If the UK employee operates from a fixed UK office rented by the parent (not by the EOR), the fixed-place test still triggers
• If customer-facing materials describe the UK office as 'our UK office' or the UK employee as part of the parent's UK operations, HMRC reads it as PE evidence

EOR is good cover for back-office, engineering, design, marketing, support, ops, and other non-sales roles. EOR is poor cover for sales, business development, country management, and customer-success-with-commercial-authority roles in the UK.

1. Customer-facing sales hire with quota and commission. Almost always triggers if they are selling to UK customers.
2. UK office with the parent's name on the door. Fixed-place trigger, even if rented short-term.
3. Country manager / VP UK / Head of UK. The title alone is dependent-agent evidence.
4. UK customer success or account management for UK customers with authority to renew or expand contracts. Increasingly read as dependent-agent activity.
5. UK marketing director hosting events that present the parent's offerings to UK prospects. Fixed-place and dependent-agent overlap.

Low-risk patterns in our experience: UK-based engineers building product for the global business; UK-based designers contributing to global product; UK-based support handling tickets globally rather than just for UK customers; UK-based operations roles internal to the company.

Step 1: honest assessment

For each UK hire, ask: does this person have customer-facing commercial authority? Do they operate from a fixed UK location? How would HMRC characterise the role if they read the job description and the customer-facing materials? Most PE risk is foreseeable from the hiring brief.

Step 2: tax memo

A short PE-risk memo from a UK-qualified tax adviser (typically in the range of a few thousand pounds depending on complexity) gives you a defensible position. The memo does not bind HMRC. But it is strong evidence of reasonable care if HMRC challenges, and it matters significantly to the penalty position.

Step 3a: structure to avoid

If the activities can be done without triggering PE, most operational and engineering roles can, structure the engagement that way. EOR through Teamed Ltd, no UK office, no UK customer-facing commercial authority, working arrangements consistent with an internal-to-global function.

Step 3b: incorporate a UK entity

If the activities materially benefit from triggering PE (commercial UK presence, customer perception, EMI share options) or cannot be reshaped to avoid it, the right answer is your own UK Ltd. The PE becomes explicit rather than accidental, and you control the tax-attribution analysis.

1. Classify each UK hire against the two PE tests

   For every UK role, check whether the person will operate from a fixed place of business at the parent's disposal, or whether they will play the principal role leading to contracts for the parent. Most PE risk is foreseeable from the hiring brief before anyone is on payroll.

2. Identify the highest-risk patterns early

   Sales roles with quota and commission, country-manager or Head of UK titles, and any customer-facing commercial authority are the highest-risk patterns. Engineering, design, support, and operations roles serving the global business are generally low-risk.

3. Engage an EOR for low-risk roles

   Hiring through Teamed Ltd as the legal employer reduces PE risk for back-office, engineering, and non-sales roles. Ensure the UK employee has no customer-facing commercial authority and operates without a UK office rented by the parent.

4. Get a tax memo for any role that could trigger PE

   A short PE-risk memo from a UK-qualified tax adviser gives you a defensible position and matters significantly to the penalty position if HMRC challenges. It is strong evidence of reasonable care and is typically far less costly than discovering the risk 18 months later.

5. Structure to avoid the trigger or incorporate deliberately

   If the activities can be done without triggering PE, structure the engagement accordingly: EOR through Teamed Ltd, no UK office, no UK customer-facing commercial authority. If the activities cannot be reshaped, incorporate a UK Ltd so the PE is explicit rather than accidental and you control the tax-attribution analysis.

Real HR and legal experts handle your UK hires, from the first offer letter through every RTI submission and year-end P60. An actual person, not a chatbot or a pooled queue. There is no setup fee and no exit fee. Employer cost passes through at cost, itemised on every invoice.

EOR payroll, contractor onboarding, and entity setup all live on one platform. Run the Crossover Calculator to see the month the model flips. Start from the UK hiring overview; each guide here takes one layer of UK employment law.

Key sources: GOV.UK employing people, HMRC PAYE for employers, and ACAS employment advice.