Permanent Establishment Risk in the UK: What Overseas Employers Need to Know

A permanent establishment (PE) is a taxable UK presence of a non-UK company. It arises if your company has a fixed place of business here, or someone in the UK habitually concludes contracts for it. An employer of record reduces your employment law burden, but doesn’t remove PE risk. That depends on what your UK people actually do.

This is a general guide, not tax advice. If you’re hiring in the UK and any of the red flags below apply, speak to a tax adviser.

What is a permanent establishment under UK law?

The UK definition is in section 1141 of the Corporation Tax Act 2010. A company has a permanent establishment in a territory if either:

1. Fixed place of business: it has a fixed place of business there through which its business is wholly or partly carried on; or
2. Dependent agent: a person acting on its behalf in the territory “habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts” that are routinely concluded without material modification by the company. The contracts must be for the transfer or use of the company’s property, or for the provision of services by the company.

The dependent agent wording in point 2 was substituted by the Finance Act 2026, for chargeable periods beginning on or after 1 January 2026. The current wording covers people who play the principal role leading to contracts, not only those who formally sign them.

Section 1141 lists examples of a fixed place of business, including a place of management, a branch, an office, a factory and a workshop.

Activities that don’t create a PE

Section 1143 says a company isn’t treated as having a PE where its activities, looked at as a whole, are only of a “preparatory or auxiliary character”. Examples in the section include storing, displaying or delivering goods and collecting information for the company.

There’s an important catch. The exception doesn’t apply if the activities are part of a “fragmented business operation”, where the company or closely related businesses split up activities that, taken together, go beyond preparatory or auxiliary.

Independent agents

Under section 1142, doing business through a genuinely independent agent acting in the ordinary course of its own business doesn’t create a PE. From 1 January 2026, an agent isn’t treated as independent if it’s closely related to the company and acts exclusively or almost exclusively for it.

How do double tax treaties fit in?

The UK has double tax treaties with many countries, and most contain a PE definition based on Article 5 of the OECD Model Tax Convention.

HMRC’s International Manual says the UK domestic definition is similar to the OECD model and has broadly the same effect. It also says treaties take precedence over UK legislation, and can reduce or remove a domestic charge but “cannot impose a charge to tax where one does not already exist” (INTM264200).

In practice: check the UK rules first, then check the treaty between the UK and your home country. HMRC’s full guidance on PE starts at INTM264000.

Why doesn’t an EOR remove PE risk?

Because an EOR and PE answer different questions.

Question	What answers it
Who is the legal employer of this person?	The employer of record
Who runs PAYE, pension and statutory pay?	The employer of record
Is your company carrying on business in the UK through a fixed place or a dependent agent?	The facts of what your business and the person actually do

When you use an EOR, the EOR is the employer in law. That deals with employment law, payroll, pensions and insurance. We explain the EOR model in what is an employer of record.

But the PE test looks at whether a person is acting on behalf of your company and what they do. The dependent agent test in section 1141 refers to “a person acting on behalf of the company”. It doesn’t say the person has to be your employee. A salesperson employed by an EOR who negotiates and closes deals for your company is still doing that for your company.

The same goes for a fixed place of business. If your company rents a UK office and runs its business from it, using an EOR for the staff doesn’t change the fact that your company has an office here.

What an EOR does do is reduce employment-side risk: you’re not trying to run UK payroll, contracts and pensions from abroad, and you’re not relying on a contractor arrangement that may not reflect reality.

What about employees working from home?

This is the common set-up for an overseas company’s first UK hire, so it’s worth looking at what HMRC says.

In INTM264435, HMRC says remote working from a UK home “will not automatically be exempted from triggering a fixed place of business PE”, and that the facts have to be examined as usual. It also says businesses should consider separately whether a dependent agent PE could arise.

So a home-based employee isn’t automatically safe, and isn’t automatically a PE. The answer turns on the facts, which is why the red flags below matter.

What are the red flags for PE risk?

These are the situations where we’d suggest you take tax advice before the person starts, or before you change their role.

Contracts and sales

• The UK employee signs contracts in your company’s name. This is the clearest dependent agent risk.
• The UK employee negotiates deals that head office then signs without changes. Under the current wording, playing the principal role leading to contracts that are routinely concluded without material modification can be enough.
• The employee has authority to agree prices, discounts or terms with UK customers.
• Sales targets and commission are tied to closing deals, not generating leads.

Place of business

• Your company rents or uses an office, desk space or warehouse in the UK.
• The employee’s home is presented as your UK office on your website, letterhead or contracts.
• Customers visit the employee’s home to do business with your company.

Seniority and management

• The UK employee is a senior executive who makes key management decisions for the company from the UK.
• Several employees in the UK together carry out a core part of your business, not just support functions.

Lower-risk activities (still check the facts)

• Marketing support, research and information gathering for head office
• Lead generation where all negotiation and contracting happens outside the UK
• Internal support roles such as engineering or customer support that don’t involve concluding contracts

How can you manage PE risk?

• Write the role down accurately. The job description and the EOR services agreement should reflect what the person actually does.
• Keep contract authority outside the UK if you don’t want a dependent agent PE. That means the person doesn’t sign, and doesn’t play the principal role in deals that head office then rubber-stamps. Make sure practice matches the paperwork.
• Don’t present a home office as your UK base.
• Review the position as the role grows. A lead generator who becomes a closer changes the analysis.
• Get tax advice early. Treaty wording, your sector and the detail of the role all matter.
• Consider a UK company if PE is likely anyway. If your UK activity will create a taxable presence, setting up a UK entity can make the tax position cleaner. See EOR vs setting up a UK entity.

Speak to a tax adviser

We’re not tax advisers, and PE is a question about your company’s corporation tax position, which depends on facts we won’t see. What we can do is make sure the employment side is handled properly while you get that advice.

If you’re planning a UK hire, our UK employer of record service covers the contract, payroll, pension and insurance. Get in touch and tell us what the role involves.