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 have to:

• 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 people assume. A regularly-used home office, a co-working desk used 4 days per week, or even a hotel room used systematically for the same purpose, can all qualify.

The activity exemption

Some activities don’t count even if conducted through a fixed place, “preparatory or auxiliary” activities. These typically include storage facilities, purchasing offices, information-gathering offices. The post-2017 OECD anti-fragmentation rules narrowed this considerably; HMRC now reads “preparatory or auxiliary” restrictively.

The 2017 OECD/BEPS update tightened this test. Pre-2017 you could argue “our UK person doesn’t 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 aren’t 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 don’t apply to agents acting in the ordinary course of their independent business. A genuine third-party UK distributor isn’t a dependent agent. An EOR is much more debatable, Teamed Ltd is independent commercially but the UK employee’s working arrangement is with the foreign parent, not Teamed’s 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 → EOR → employee”, not “parent → employee”, which gives some treaty analysis room
3. EOR-employed UK staff don’t hold formal authority on the parent’s legal entity (they can’t bind the parent as a director or officer)

What EOR doesn’t 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’re 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/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 plus 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 £1,500–£5,000 depending on complexity) gives you a defensible position. The memo doesn’t bind HMRC, but it’s strong evidence of reasonable care if HMRC challenges and matters significantly to 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 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 can’t 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.