Our clients will often work remotely from a second home or other location.
What might feel like little more than a lifestyle choice – attending meetings remotely with a view of the ocean – can have significant consequences for the business and individuals connected with that work.
The location from which key business activities are carried out may create a permanent establishment (PE).
A PE creates a taxable presence in a country even where there is no local subsidiary and can be established much more easily than most people expect. The establishment of a PE brings with it serious consequences and obligations in terms of corporation tax, employment obligations (including PAYE, income tax, and NICs), and reporting requirements. Beyond business considerations, this can significantly impact individuals and their personal wealth and succession planning.
Obtaining early advice is essential as the rules are difficult to navigate and depend on the specific jurisdiction and circumstances.
What is a permanent establishment?
For UK tax purposes, a PE is most commonly established through:
- a fixed place of business (for example a home office) through which its business activities are carried out; or
- a “dependent agent” carrying out its business in that country.
A fixed place of business - working from home or a second residence
Working remotely from a primary or secondary residence or holiday rental will not immediately create a fixed place of business. However, the likelihood of creating a PE increases where that location is routinely available for business use and the person in question carries on business activities that are more than merely incidental. By way of example, this might include the making of “management level” decisions, concluding contracts or the performance of other core business functions from that location. A useful starting point is to consider what proportion of your working time in a given year is spent in a secondary location – time spent is an important factor but it is not always determinative.
The specific wording of an employment or consultancy agreement will not avoid a PE if the reality of the situation demonstrates a contrasting degree of permanence associated with a secondary location.
The expanded UK agency PE rules
Effective from 1 January 2026, the UK domestic rules for establishing a PE have been updated. The test is now whether you:
“..habitually conclude contracts or habitually play the principal role leading to the conclusion of contracts, that are routinely concluded without material modification by the company”.
This differs from the previous test which required an agent to have and habitually exercise authority to conduct the business of the company and carry out contracts. This change catches for example sales support teams that negotiate deals which are then signed off overseas without material change and that previously fell outside the net.
Moreover, the exclusion that applied to “agents of independent status” has been narrowed – previously an agent was not treated as dependent merely because the principal owned it so that a subsidiary could be an independent agent of its parent. From 1 January 2026, this no longer applies and a person cannot be independent of another if they are “closely related”. “Closely related” can mean where one entity controls the other or they are under common control. Existing intra-group service and distribution arrangements should therefore be looked at afresh.
Family offices should consider whether the presence of a UK-based investment manager may inadvertently create a PE; while the investment manager may not be “concluding contracts” it is more than conceivable that they play a role in decision making that leads to a contract’s conclusion.
The investment manager exemption may still offer protection, and HMRC has updated its guidance on it for the 2026 changes, so its conditions should be checked carefully against the actual arrangements.
Many of the UK’s double tax treaties still operate according to the narrower PE rules and may offer some protection. However, the position is likely to evolve going forward as treaties are updated; by way of example the UK-Peru double tax treaty, which entered into force in January 2026, already includes the broader definitions.
What this means for you
We recognise that keeping records of what you do where is not always easy with competing time demands.
However, you should have in place protocols and procedures to mitigate the possibility of a PE being created. These should include a requirement to retain a detailed and accurate record of working patterns and where decisions are being made. Clear limits on authority should be set and followed, and activities in relevant jurisdictions should be limited as appropriate.
The protocols and records should be coordinated across all corporate, employment, personal tax and succession elements to ensure optimised consistency.
