Do you already have a UK tax presence?

The first question for any group thinking about a UK entity is not which entity to set up. It is whether the group already has a UK taxable presence without one, because if it does, there are filings that are already late.

What creates a UK taxable presence

An overseas company is taxable in the UK on the profits attributable to a UK permanent establishment. There are two ways to have one.

1. A fixed place of business through which the company's business is carried on. An office, a workshop, a warehouse where you do more than store goods, a site you occupy. It does not have to be owned or leased in the company's name. A home office used regularly by a UK employee can qualify, so remote hiring does not avoid the question.
2. A dependent agent in the UK who has, and habitually exercises, authority to conclude contracts on the company's behalf. This is the one that catches sales-led expansion. An employee based in London with a laptop and no office, who negotiates and closes deals for the overseas parent, can create a permanent establishment on their own.

An independent agent acting in the ordinary course of their own business, such as a genuine distributor or a commission agent with several principals, does not usually create one. The word doing the work is independent, and a contract that calls someone a consultant while treating them as your salesperson will not settle it.

What does not create a taxable presence

Selling into the UK from abroad, with no UK premises and no UK people, generally does not create a UK taxable presence. Shipping goods to UK customers, running a website UK customers buy from, and taking UK orders processed abroad all sit outside it. Preparatory or auxiliary activities, such as storing goods for display or gathering market information, are specifically excluded, though the exclusion is narrower than it used to be and cannot be relied on where the activity is the business.

The two patterns that create one

The first UK hire. A group hires a salesperson in the UK through an employer of record or as a contractor. Having no entity here does not remove the filing obligation. If that person is closing deals, the parent may have a permanent establishment, a corporation tax filing obligation, and a transfer pricing question about how much profit belongs here. Using an employer of record does not prevent this. The employer of record is the employer; the business being carried on is still yours.

The office that arrived by degrees. A desk becomes a room becomes a floor. There is no point at which a decision to open a UK office is taken, and no point at which the tax position is reviewed.

The anti-avoidance rules

The UK has rules aimed at arrangements designed to avoid creating a permanent establishment while doing the same business, and separate rules that can create a UK taxable presence for land and property transactions even with no permanent establishment at all. There is also a charge aimed at profits diverted from the UK by arrangements lacking economic substance. They do not affect ordinary trading arrangements, but they do mean that structuring specifically to avoid a UK presence, while running a UK business, is not the clean answer it looks like.

VAT is a separate question with a separate answer

A company can have a UK VAT obligation with no UK tax presence whatsoever, and the two are decided by different tests. The most important point for an overseas group: the £90,000 registration threshold applies to businesses established in the UK. A business with no UK establishment that makes taxable supplies here has no threshold at all and must register from its first sale. Groups selling services into the UK from abroad are often registered late for VAT and have never had a corporation tax issue.

If a taxable presence already exists

Coming forward voluntarily produces a materially better outcome than being found, and HMRC's approach to a group that arrives with a computation and an explanation is different from its approach to one it has had to chase. The order of work is: establish whether a permanent establishment exists and from when; compute the profits attributable to it for each open period; register and file; and decide whether to keep operating as a branch or incorporate a subsidiary and move the trade across. That last decision is often easier once the position is regularised, because the answer to "what should we have done" is usually also the answer to "what should we do now".

Why a subsidiary usually settles it

A permanent establishment requires you to work out, and defend, how much of the parent's worldwide profit belongs to the UK activity. It is a transfer pricing exercise carried out on a business with no separate accounts, which is difficult. A subsidiary has its own books, its own revenue and its own costs, and the intercompany arrangements are written down in advance. The compliance is not lighter, but it is far more knowable, and that is worth a great deal when the alternative is an argument with HMRC about an allocation no one documented at the time.