UK establishment

‘Establishment’ is a concept with wide-reaching implications across UK taxes, particularly corporation tax, VAT and customs duty. It is often forgotten about, yet it can create complex challenges if ignored, especially as being established in the UK for one tax does not guarantee the same status for the others. It is important because a business’ status will impact on reporting, filing and financial obligations in the UK.

In this article we have summarised the positions for corporation tax, VAT and customs duty with respect to establishment, to give some clarity on each of the respective rules and thoughts for you to consider how it might impact your business.

A permanent establishment (PE) is a taxable presence outside of a company's place of residence. The concept of 'permanent establishment' is important because it will often determine whether a company is subject to tax in a particular jurisdiction.

If a non-UK resident company carries on a trade in the UK through a UK PE, the non-UK resident company would be chargeable to UK corporation tax on its profits attributable to that PE, wherever they arise. Similarly, a UK company that carries on a trade overseas can create an overseas PE if it breaches the PE rules applicable to the overseas territory.

In the UK, subject to certain conditions, domestic PE rules largely follow the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.

What is a PE for corporate tax purposes?

For UK corporation tax purposes, there are two types of permanent establishments under UK law:

• fixed place of business PE
• dependent agent PE.

What is the difference between the two types of permanent establishments?

Fixed place of business

A fixed place of business PE arises when an entity has a fixed business location at its disposal in a foreign jurisdiction through which it carries out all or part of its business operations. This could include facilities such as a workshop, management office, factory, or any other established business premises.

Since 2025, the OECD have expanded the concept of “workplace” to include any location where an employee habitually carries out business activities, including non traditional workspaces such as a second home, holiday rental or a relative's home.

The 2025 OECD Article 5 update introduced:

1. 50% Working‑Time Benchmark: a home office or other non‑traditional workspace will generally not amount to a fixed place of business PE where the employee performs less than 50% of their total working time there over any rolling 12‑month period.
2. Commercial‑Reason Test: even where 50% of the work is carried out at a home office or other non‑traditional workspace, a PE only arises if there is a genuine commercial reason for the employee to be in that location (e.g. local client engagement and supplier management). Situations such as personal preference, employee lifestyle choice, or cost savings do not qualify.

However, provisions state that a PE is not created if the activities at the fixed place of business are preparatory or auxiliary in nature, i.e., activities involved in the set-up of operations in a territory or support functions that are not considered a significant value driver for the business.

Dependent agent

A dependent agent PE is created when an agent or employee acts on behalf of the entity, has the authority to negotiate or conclude contracts, and habitually exercises this authority in a foreign territory.

It will be important to consider both the nature of that authority and how it is exercised in practice.

Why it matters

Understanding whether you have a permanent establishment is key to managing your corporation tax position and avoiding unexpected exposure. In particular:

• it determines where your business is taxed – a UK PE means profits linked to that activity could be taxed in the UK
• UK businesses operating overseas can also create tax exposure in other jurisdictions.
• it can bring added complexity, particularly around attributing profits and meeting filing requirements
• there is an increasing focus from tax authorities (especially with remote working) which means PEs can arise unexpectedly.

‘Establishment’ can be easily overlooked or, as we more commonly see, frequently misunderstood. As well as the impact on UK VAT registration obligations, it can have wider repercussions such as whether an entity can join a UK VAT group or a business’ ability to recover input tax. 

HMRC is not afraid to challenge whether a business belongs in the UK and many cases have gone to tribunal on this point, notably the recent case of Barclays Service Corporation and Barclays Execution Services Limited [2026] UKUT 00211 (TCC).

Am I established in the UK?

An entity may have a business establishment or a fixed establishment in the UK, or it may not have an establishment in the UK at all. The two types of establishment can be summarised as follows:

There must be clear operational substance in the UK for there to be an establishment. For UK VAT purposes, there would not be a fixed establishment in the following circumstances:

1. an overseas company is registered or incorporated at its accountant’s UK address, but it does not have any other offices or employees in the UK
2. a business has a UK VAT registration but does not have human and technical resources in the UK.

What if I am established in more than one country?

Depending on the structure of your business, you may have establishments both in the UK and outside of the UK. If this is the case, when making and receiving some types of services you will need to decide which establishment is most directly connected with a supply.

The following factors can help when deciding which establishment is most directly connected to a supply:

• which location is taking or giving instructions
• where does the work physically take place
• is there clear use of the services at a particular establishment (for example, if you lease goods are they used at just one establishment).

Why it matters

Establishment is crucial for understanding your UK VAT obligations because (this is not an exhaustive list): 

• if you are a supplier; it is your responsibility to find out at which establishment your customer receives your supplies and therefore whether UK VAT is chargeable. From the customer’s perspective, the customer can only recover VAT if it has been properly charged
• only entities that have an establishment in the UK are eligible to join a UK VAT group
• if you are established in the UK, the VAT registration threshold of £90,000 applies. However, there is no threshold for non-established entities.

When importing goods into the UK, where your business is “established” is not just a technical detail. It is one of the factors that determines what traders can and cannot do, including whether they can lodge customs declarations, act as declarant, assume customs liability, and access authorisations that can make trade smoother and more cost effective.

What constitutes establishment for customs purposes?

Under UK customs law, a business is considered established in the UK if it has either:

• a registered office in the UK
• a permanent place in the UK from which it carries out its activities.

In practice, HMRC guidance treats a company incorporated at Companies House as established in the UK for customs purposes. Sole traders, partnerships or overseas businesses that are not incorporated or registered in the UK may still be able to demonstrate establishment if they have a permanent UK business presence with regular and ongoing commercial activity.

A UK VAT registration or GB EORI number alone does not prove establishment for customs purposes.

Importer, declarant and representation

Establishment status directly affects who can lodge customs declarations. A business may be named as the importer, but only a UK-established person can lodge a customs declaration in their own name as declarant.

A non-established business cannot make customs declarations in its own name and must instead appoint a UK-established customs representative, typically a UK customs broker.

Direct vs indirect representation

Under direct representation, the representative acts in the importer’s name and on the importer’s behalf. Liability for any customs debt rests with the importer. This is typically used where the importer is UK-established.

Under indirect representation, the representative acts on behalf of the importer but in its own name. In this case, liability for customs debt is joint and several between the importer and the representative.

This model is normally required where the importer is not UK-established. It places additional risk on the customs representative, so many brokers are reluctant to act as indirect representatives. Those that do may charge a premium, require upfront payments and carry out more extensive due diligence before agreeing to proceed.

Access to authorisations and facilitations

Being UK-established can unlock or support access to key customs benefits, such as:

• Simplified declarations – allowing goods to be released using a reduced data set at the frontier, followed by supplementary declarations.
• Duty Deferment Account – a duty deferment account allows duty and import VAT to be paid monthly rather than at the point of import. A UK bank account/direct debit arrangement is required, and UK establishment is also relevant where a business wishes to apply for a guarantee waiver.
• Special procedures – to access procedures such as Inward Processing, Outward Processing and Customs Warehousing, UK establishment is generally required.
• Other authorisations – UK establishment is also relevant for wider customs authorisations and facilitations, including AEO and customs comprehensive guarantees.

Why it matters

Customs establishment is an important factor in determining the most appropriate UK import model. It can influence whether a business can make declarations in its own name, the type of customs representative it needs, and whether it can access certain authorisations or simplifications.

For non-UK established businesses, this does not necessarily prevent imports into the UK, but it can affect how those imports are managed in practice. In particular, the business may need to rely on a UK-established representative, potentially on an indirect representation basis, and should consider any associated costs, due diligence requirements and operational limitations.

In short, understanding the establishment position early helps businesses decide the most practical and compliant way to manage UK imports, while avoiding unnecessary complexity later in the process.