Where is a company resident for UK tax purposes?

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A company that is tax resident in the UK will generally be taxed in the UK on its worldwide income. A company that is not tax resident in the UK will only be chargeable to UK corporation tax to the extent that it is carries on a trade through a permanent establishment (PE) in the UK. Corporate residence rules are important to establish which country has taxing rights over a particular company and to what extent.  Notification will need to be made to HM Revenue & Customs (HMRC) of coming within the charge to corporation tax.

1.       When will a company be tax resident in the UK?

A company is tax resident in the UK if either of two tests is met:

  • it is incorporated in the UK, or

  • the central management and control of the company is found to be exercised in the UK.

Thus, a company incorporated in the UK will be tax resident in the UK as will a company incorporated overseas if its central management and control is exercised in the UK.

2.      Central management and control

The incorporation test is easy to establish but the test of central management and control developed as a result of UK case law in the absence of a definition of 'residence'.  The facts in each particular case must be taken into account in determining where central management and control is actually exercised.

3.      Practical guidelines

The following factors can be considered for the test of central management and control:

  • Whether the majority of the directors are UK resident

  • Where the meetings of the board of directors are held

  • Whether board meetings are preceded by adequate notice and circulation of an agenda and relevant information and documents

  • Whether the board takes all decisions affecting matters of policy or management of the company's business at meetings of the full board

  • Whether the directors use proxies

  • Whether the directors undertake their duties in the UK

  • Whether company records, minute books and statutory documents are kept in the UK.

The above list is not exhaustive and evidence of board meetings and decisions relating to central management and control should be kept with the company's books and records.

Each case needs to be considered on its own merits. It will be necessary to distinguish between the exercise of the normal powers of a majority shareholder and whether they override the powers of directors in the subsidiaries. The amount of autonomy the subsidiary has with regards to making such decisions should be considered.
As with all such tax situations, advice should also be sought before proceeding.  For further details call Alan Boby on 01295 250401 or email aboby@ellacotts.co.uk

Alan Boby

Ellacotts LLP"


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