HM Revenue & Customs (HMRC) has been stepping up scrutiny of overseas companies as board-level executives return to the UK due to instability in the Middle East, according to data obtained by Price Bailey, the chartered accountants.
British expats in the Gulf working for overseas companies who have returned to the UK may inadvertently trigger Corporation Tax and VAT liabilities for their foreign employers.
According to data obtained under the Freedom of Information Act, HMRC’s Wealthy and Mid-sized Business Compliance (WMBC) directorate opened 72 permanent establishment (PE) and corporate residence compliance checks over the last four years.
A PE compliance check examines whether a non‑UK company has created a taxable presence in the UK through its activities here. This could include where senior executives in the UK habitually conclude contracts on behalf of the business. By contrast, a corporate residence enquiry looks at where the company’s highest‑level management actually take place. If those central management functions are exercised in the UK, the company may be treated as UK‑resident for tax purposes.
HMRC also disclosed that it has undertaken two one-to-many (“nudge”) letter campaigns over the last four tax years concerning PE risk. A nudge letter campaign is a compliance initiative where HMRC sends targeted “one-to-many” communications to groups of taxpayers, using data-driven insights to prompt them to voluntarily review their tax affairs and rectify any potential discrepancies without a formal investigation.
These campaigns indicate that HMRC believes the PE risk is widespread and under‑managed across both mid‑market and large multinational groups.
In 2022, the Mid‑Size Business unit targeted overseas companies operating UK PAYE schemes without a corresponding UK Corporation Tax registration. They warned that UK‑based staff could create a PE and required businesses to explain why they believed no UK CT liability arose.
In 2023/24, the Large Business Directorate ran a campaign focused on groups with known non‑UK entities trading through a UK PE, instructing them to review whether they were filing the correct accounts and accurately calculating UK taxable profits.
Nikita Cooper, Director at Price Bailey, comments: “There has been a lot of attention paid to the personal tax exposure of British expats returning from Gulf countries but many of these people are senior executives and their presence in the UK could trigger corporate tax liabilities.”
“From a risk perspective, this issue is becoming far more prominent. The movement of senior executives back to the UK can have a real knock‑on effect on company structures. With more mobile operating models and cross‑border arrangements, businesses need to ensure that any positions they take are robust not only technically, but also in terms of governance and documentation.”
She added: “PAYE filings will always flag potential UK PEs to HMRC. HMRC is increasingly using AI to identify indicators such as a UK business address, a UK‑facing website, or UK‑based operational activity. These digital footprints strengthen HMRC’s ability to assert that a UK PE exists.”
Sarah Howarth, Director at Price Bailey, said: “While the preparatory and auxiliary activities exemption continues to apply where only peripheral activities are undertaken, the UK has now largely enshrined the OECD’s Article 5 definition of a PE into domestic law through the Finance Act 2026.
“This lowers the threshold for creating a dependent agent PE. It is now enough for a person in the UK to habitually play the principal role leading to the conclusion of contracts, even if they do not formally sign them.”
She added: “Once HMRC begins questioning whether a PE exists, this can quickly extend into wider areas such as VAT establishment risk and the attribution of arm’s‑length profits, or even corporate residence. Given the way many businesses now operate — more remotely, and with talent hired wherever it is found — this issue is only going to become more pressing.”
Elizabeth Bradley, Partner at BCLP, the international law firm, said: “HMRC will be aware of the increased movement of board level executives to the UK due to the conflict in the Middle East.
“When senior staff spend time in the UK, even temporarily, that can shift management control without anyone realising, thereby creating UK tax residency for their company. This is a separate issue from the risk of creating a UK permanent establishment.”
“Unlike personal tax, where simple day‑count determines UK residence, corporate residency turns on what actually happens here. For example, running board meetings from the UK, if repeated, can pull an overseas company into the UK tax net.”
“Board level executives who have come over to the UK due to the conflict in the Middle East should be aware of these risks and take precautions.”
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