UK corporate tax residence and permanent establishment risks – prepare for increased HMRC scrutiny

Recent developments

Overseas companies that do not want to be tax resident in the UK or have a permanent establishment (PE) in the UK should take note of recent developments.

• HMRC’s Large Business Directorate, which focuses on large businesses, recently confirmed it suspected that some £16.1 billion of UK taxes had been underpaid by overseas-parented groups. This had increased from the previous year, when the amount of tax underpaid was estimated to be £14.9 billion.¹

• Recent reporting suggests that HMRC has increased scrutiny of overseas companies as company executives returned to the UK following instability in the Middle East.²

• In the tax tribunal, HMRC scored a big win in the case of Cogefin (Bermuda) Limited & Anor v HMRC [2026] UKFTT 1108 (TC).³ Although Cogefin was a company incorporated in Bermuda with professional directors who were also based in Bermuda, the tribunal found that its central management and control was exercised in the UK by an individual who was not a director. It followed that the Bermudan company had been resident in the UK for corporation tax purposes from 1999 to 2017, with significant tax exposure and other implications.
    

Why these developments matter

Broadly, outside of the real estate context, an overseas company will not be subject to UK corporation tax unless its central management and control is located in the UK, making it UK resident, or it carries on a trade in the UK through a PE in the UK.

If an entity is UK resident, then it is generally subject to UK corporation tax on its worldwide income and gains. It will need to register with HMRC and report accordingly. Other UK taxes, such as employment taxes and value added tax, could also be relevant.

Even if an entity is not UK resident, if it trades in the UK through a PE in the UK then it will be subject to UK corporation tax and it will need to register and report to HMRC, albeit that its UK corporation tax liability is broadly limited to the profits which are attributable to the PE. Again, other UK taxes, such as employment taxes and value added tax, could also be relevant.  
   

Who is at risk

All overseas companies and other overseas legal entities that do not want to be resident in the UK and do not want a PE in the UK.
   

What should you do

The developments above suggest that HMRC is looking at overseas companies more closely. For entities who seek not to be resident in the UK and not to have a PE in the UK, these developments emphasise the importance of taking advice periodically in relation to their arrangements to see if they are on the right side of the line and what it is that they need to do to stay there. Importantly, entities will need to be prepared for a HMRC enquiry with their analysis and evidence.

Failure to be prepared could be extremely costly if HMRC conclude that an entity is either UK resident or it has a PE in the UK and that UK corporation tax (and possibly other taxes) are therefore due, along with interest, potentially penalties and potentially negative publicity.

You should therefore review whether existing processes (“who does what, where and why”), controls and the contemporaneous evidential record are robust enough to withstand HMRC scrutiny, bearing in mind that the burden of proof in an enquiry situation will be on the taxpayer entity. Having a tested analysis in place is an important protective step in the event that HMRC raise questions.

Consideration should also be given to other developments in UK tax law, including the new duty to correct tax errors which, if implemented in its current form, will heighten the tax risks involved. Our recent article on the new duty to correct is available here.
  

Contact us

Taxpayers will need advice in order to protect themselves. We can assist – please contact Shofiq Miah at shofiq.miah@stephensonharwood.com or another member of the Stephenson Harwood tax team.

¹ HMRC’s Large business compliance: technical note, dated 9 July 2026. The previous year’s edition is dated 17 July 2025.
² Taxation, 18 June 2026, p5
³ The judgment is dated 30 July 2026.