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There is an invisible line between having a UK client and having a UK tax bill. Cross it without knowing, and you are not just losing profit - you are inviting HMRC into your business, potentially with a 20-year look-back window.
This guide is for foreign business owners, Non-Resident Pakistanis (NRPs), and Pakistani firms - Karachi exporters, Lahore software agencies, remote-service providers - who have UK customers, UK-based staff, or any UK-facing operations and need to understand exactly when that creates a real tax obligation.
Answer these questions before reading further. If two or more answers are "Yes," your business likely needs a formal UK tax assessment now.
| Question | If Yes - What It Means |
|---|---|
| Do you have a UK employee who signs, negotiates, or commits to contracts on your behalf? | PE risk - seek assessment |
| Do you sell digital services or goods directly to UK consumers (B2C)? | VAT registration may apply from first transaction |
| Does your business own UK property or land? | Corporation Tax and reporting apply regardless of PE |
| Do you use a UK co-working space or desk for regular business activity? | Fixed Place PE risk |
| Are you personally spending significant time in the UK (several weeks or months per year)? | Statutory Residence Test review needed |
| Do you have a UK agent who works exclusively or mainly for your business? | Dependent Agent PE likely |
| Have you received any correspondence from HMRC about your UK activity? | Immediate professional review required |
If only one row applies and it is the last one, act immediately. If none apply, read on to confirm your position. Two or more "Yes" answers means a formal UK tax exposure review is the right next step.
A non-resident business only owes UK Corporation Tax if it has a Permanent Establishment (PE) in the UK or earns UK-sourced income such as property income.
Having UK customers alone does not automatically create a UK tax obligation. What matters is where the economic activity generating that income takes place.
A UK-based remote worker or agent who concludes contracts on your behalf can trigger PE - even with no physical office anywhere. The title does not matter; the authority does.
VAT exposure for non-established persons operates independently of PE rules. You can owe VAT without any PE existing - B2C digital services trigger registration from the very first transaction.
The 2025 non-dom regime abolition primarily affects individual owners, but it forces a serious look at how Pakistani owners are personally taxed on UK and foreign income.
The Pakistan-UK Double Taxation Agreement prevents double taxation - it does not remove the UK's right to tax PE-attributable profits first. You may still need to register and report in the UK even when treaty relief reduces the overall bill.
HMRC requires registration within 3 months of triggering an obligation. Penalties run from the date the obligation began - not from when they contact you. The longer unregistered activity continues, the larger the potential back-dated exposure.
Not every foreign business dealing with the UK owes HMRC anything. The obligation depends on two core triggers: Permanent Establishment (PE) and UK-sourced income. If neither applies, your business generally has no UK Corporation Tax liability.
| Trigger | Creates UK Tax Risk? |
|---|---|
| UK customers (purchases made online from abroad) | Generally No |
| UK property owned by the foreign company | Yes - income and gains taxable |
| Fixed office or branch in the UK | Yes - PE established |
| UK-based employee who closes deals on your behalf | Yes - agent-based PE likely |
| UK-based employee doing only back-office support | Borderline - fact-specific |
| Agent with authority to conclude contracts habitually | Yes - PE risk is high |
| UK registered address only (no activity) | Generally No |
| Digital services sold to UK consumers | VAT risk only; usually not Corporation Tax |
Foreign company UK sourced income tax liability comes from two main places: profits from a trade carried on through a UK PE, and income from UK property or land.
If your Pakistani firm has no UK office, no agents closing deals in the UK, and no UK property - and you simply sell services or goods to UK customers from abroad - that income is generally considered foreign-sourced. HMRC does not tax it at the company level just because the buyer is British.
Profits directly attributable to a trade carried on through a UK PE fall within Corporation Tax scope. This covers fixed-place operations and agent-based PE activity where deals are concluded in the UK on behalf of the foreign business.
Property income and gains from UK land are taxable regardless of whether any PE exists. A separate rule applies here - owning UK property automatically triggers Corporation Tax and reporting obligations for a non-resident company.
This is where a lot of foreign business owners get it wrong. The location of your customer does not determine where the income is sourced. What matters is where the economic activity generating that income actually takes place - where your team works, where contracts are concluded, where the work gets done.
A Karachi-based IT firm invoices UK clients monthly. All work is done in Pakistan. Nobody on the team is physically in the UK or authorised to sign contracts there. That firm's income is generally outside UK Corporation Tax scope.
If you are a Pakistani business owner who visits UK clients regularly, keep a log of your days in the UK. Those days factor into your personal residency assessment under the Statutory Residence Test - and they can shift your personal tax picture even if your company's position is clean.
UK permanent establishment foreign business risk is the most misunderstood area in this whole topic. Most foreign owners assume no office means no PE. That assumption is frequently wrong - and expensive.
Under UK law - and the OECD model which most tax treaties follow - a PE can be established in two ways:
This includes a branch, office, factory, workshop, or any place your business uses regularly in the UK for core operations. You do not need to own or lease it.
A dedicated desk at a London co-working space used for one week every month - consistently, for core business activity - can qualify. The test is regularity and the nature of the activity, not who pays the lease.
This is the one that catches more businesses off guard, and it requires no physical premises at all. If a person in the UK - whether an employee, contractor, or sales representative - habitually concludes contracts on behalf of your foreign business, HMRC may treat that as a PE.
"Habitually" is the operative word. A one-off deal is unlikely to qualify. A pattern of deal-closing is a different matter entirely.
The distinction between preparatory activity and substantive business activity is not always clean. Thinking your UK staff are "just doing marketing" will not protect you if they are warming up leads, quoting prices, and finalising scope. HMRC looks at substance over form - what is actually happening, not what job titles say.
| Situation | PE Type | Risk Level |
|---|---|---|
| UK branch or office used for core operations | Fixed Place | High |
| Dedicated co-working desk used regularly | Fixed Place | Medium-High |
| UK employee closing deals habitually | Dependent Agent | High |
| UK "Business Development Manager" negotiating terms | Dependent Agent | High |
| UK employee doing admin and support only | Neither | Low - verify scope |
| Independent UK agent with multiple clients | Neither | Generally Safe |
| UK mailing address, no activity | Neither | Generally Safe |
This section is where HMRC tax obligations foreign company UK employees risk becomes very practical - and where Pakistani firms expanding UK-facing operations most commonly cross a line without realising it.
Having UK customers does not create Corporation Tax exposure on its own. The trade needs to be "carried on" in the UK - not just directed at UK buyers. A Lahore agency billing a Manchester firm for services delivered entirely from Pakistan is not "trading in the UK" for Corporation Tax purposes.
This is a scenario that is becoming more common and more costly. A Pakistani firm hires a UK-based "Business Development Manager" to grow its UK client base. That person works from a home office in Birmingham. No company lease, no formal branch - nothing that looks like a UK presence on paper.
But if that person is negotiating contract terms, agreeing on project scope, and finalising deals with UK clients on the firm's behalf - even informally, even over email - HMRC may treat the firm as having a dependent agent PE in the UK. The title "Business Development" does not matter. The authority to negotiate and commit does.
If you hire UK-based staff, their contract and job description should clearly define the limit of their authority. Someone who "supports sales" with no ability to commit the company to terms sits in a different position to someone who "agrees engagements." Get this defined before they sign their first client.
HMRC does not just look at individual transactions. It looks at patterns. If your UK contact is regularly the one who quotes prices, agrees timelines, and sends the signed engagement letter - that pattern of behaviour is evidence of a PE, regardless of where the company is registered.
A Lahore digital agency has a team member working from Manchester. She pitches clients, discusses pricing, and confirms project terms. The agency has no UK office, no UK registration, no UK bank account. Under HMRC's dependent agent rules, this creates a non-resident company UK tax liability - specifically, a PE attributable to that team member's UK activity.
Non-resident company UK tax liability under Corporation Tax is narrower than most people assume. A foreign company does not pay UK Corporation Tax on its global profits - only on specific UK-connected profits.
While Corporation Tax depends largely on "where you are" and whether a PE exists, VAT often depends on "who your customer is." These are two separate frameworks - you can owe one without owing the other. That distinction is important and often misunderstood.
PE status is fact-specific. A UK-based employee, a growing client base, a co-working desk used once a month - any of these could be enough. A formal assessment costs far less than a back-dated HMRC discovery covering years of unregistered activity.
Non-established taxable person UK business VAT rules are one of the most frequently missed obligations for foreign companies. You can have zero PE, no Corporation Tax liability, and still owe UK VAT.
HMRC uses the term "non-established taxable person" (NETP) to describe businesses that make taxable supplies in the UK without being UK-established. If you fall into this category, you must register for VAT from your very first taxable UK supply. The standard £90,000 annual threshold that applies to UK businesses does not apply to NETPs. There is no minimum. The first pound of taxable supply can trigger registration.
One common error is assuming that because your UK business customers handle VAT themselves through the reverse charge, you have no VAT obligations at all. This is only true for qualifying B2B transactions. The moment you sell to a UK consumer directly, or the transaction falls outside reverse charge rules, the NETP framework applies.
"My UK business customers handle VAT themselves, so I have no VAT obligations" - this assumption is only valid for qualifying B2B reverse charge transactions. It is not a blanket protection for all UK sales. Always verify the transaction type before assuming you are outside scope.
The 2025 non-dom end non-resident business structures transition is significant - though its direct impact on non-resident companies is more subtle than the headlines suggest.
For Pakistani business owners, the Statutory Residence Test (SRT) is more important than ever. The SRT counts days, ties, and connecting factors. Cross the residence threshold and your personal tax position changes completely - including how income drawn from your foreign company is treated.
The abolition changes how income drawn from your foreign business is treated if you are UK-resident. Salary, dividends, and profit distributions from a Pakistani company must now be assessed under the new worldwide income rules - not the old remittance basis.
There is a deeper structural implication that most guides miss. A company is treated as UK-resident for tax purposes if its central management and control is exercised in the UK. If key decisions are made while the owner is physically in the UK with increasing regularity, that is a factor HMRC can examine.
If a Pakistani business owner starts spending more time in the UK - attending client meetings, managing UK-facing operations directly - this can affect where the business itself is considered to be managed and controlled. If you, as the owner, are making key decisions while physically in the UK with increasing regularity, that is a factor HMRC can examine.
If you are an NRP director who has moved back to Lahore but still spends several months in the UK each year, your UK company may technically be treated differently depending on where key decisions are being made. Check your management and control triggers before HMRC does.
HMRC non-resident business compliance 2025 expectations are more robust than many foreign business owners realise. The idea that operating remotely keeps you under HMRC's radar is not a safe assumption.
Once a PE is established, HMRC requires registration within 3 months of the accounting period in which the PE began. This clock starts the moment the obligation arises - not when HMRC makes contact.
Penalties apply from the date the obligation arose - not the date HMRC contacts you. A business that has had a UK PE for two years before HMRC's letter arrives faces two years of backdated penalties, not just a few months.
Foreign businesses with UK property income must register for Self Assessment and file returns, even without a PE. Property income is separately assessable and has its own filing deadlines outside the Corporation Tax framework.
For NRPs and Pakistani business owners specifically: if you have UK customers, a UK employee, or any regular UK-facing operations, a formal PE assessment before HMRC makes contact is the safest and cheapest route.
Discovery assessments can go back up to 20 years in cases of deliberate non-compliance. This is not a theoretical risk - it is the framework HMRC applies when it identifies businesses that should have been registered but were not. The further back the unregistered period runs, the larger the potential liability becomes.
HMRC has data-sharing agreements under the Common Reporting Standard (CRS) with many countries, including Pakistan. Financial account information - including business income flows and bank balances - is exchanged automatically between tax authorities. Operating as if this data is invisible to HMRC is not a defensible strategy.
UK taxes non-resident businesses common pitfalls usually come from two opposite directions - either assuming too much risk where none exists, or dismissing real exposure because the business looks non-UK.
The most common assumption - and the most costly. A dependent agent, including a UK-based employee who closes deals, can create full PE exposure with zero physical office presence anywhere in the UK. Many Pakistani firms discover this only after HMRC correspondence arrives.
Having a UK mailing address or virtual office used purely for correspondence does not trigger PE or Corporation Tax. The activity is what matters, not the address on a letterhead or website.
B2B customers in the UK may handle VAT through the reverse charge mechanism. But this does not apply in all situations - particularly for B2C sales or certain digital service categories. Assuming your customers handle VAT without verifying the transaction type is a compliance risk.
The Pakistan-UK Double Taxation Agreement is a prevention of double taxation - not a tax-free pass. Many business owners believe the treaty means they do not need to file or register in the UK at all. That is not correct. If a PE exists, UK Corporation Tax still applies to PE-attributable profits. The treaty prevents Pakistan taxing those same profits again - it does not remove the UK's right to tax them first. You may still need to register and report in the UK even when treaty relief reduces the overall bill.
Digital businesses are not exempt. The trading in UK without physical presence tax rules are increasingly enforced - particularly through the NETP VAT framework for businesses selling directly to UK consumers. "No office" and "digital only" are not the same as "no UK tax obligation."
"Just marketing" is not a guaranteed safe zone. If UK staff are qualifying leads, quoting prices, and confirming scope - even informally - HMRC examines the substance of what they do, not the label on the job description. If they are functionally concluding business, the preparatory activity exception does not apply.
Use these questions to assess your current exposure. Be specific about what your UK-based staff or contacts actually do - not just what their job titles say.
| Question | Your Answer | What It Means |
|---|---|---|
| Do you have a UK employee or representative who negotiates or commits to contracts? | Yes / No | Yes = dependent agent PE likely |
| Do you sell digital goods or services directly to UK consumers? | Yes / No | Yes = NETP VAT registration may apply from transaction one |
| Does your business own UK property? | Yes / No | Yes = Corporation Tax and reporting apply |
| Do you use UK co-working space or any fixed UK location regularly? | Yes / No | Yes = fixed place PE risk |
| Are you personally spending several weeks or months per year in the UK? | Yes / No | Yes = personal Statutory Residence Test review needed |
| Do you have a UK agent who works mainly or exclusively for your business? | Yes / No | Yes = dependent agent PE likely |
| Have you received HMRC correspondence? | Yes / No | Yes = immediate professional review required |
| Do you only sell B2B to UK firms, with all work done in Pakistan? | Yes / No | No to all above = generally low risk; verify VAT treatment |
Two or more "Yes" answers in the first seven rows = formal tax exposure review is the right next step. If only one row applies and it is the last one (HMRC correspondence), act immediately regardless of how many other rows apply. If none of the first seven apply, read on to confirm your position and verify your VAT treatment.
Foreign business UK customer tax exposure is not always self-evident, and PE status is often fact-specific enough that a clear answer requires professional assessment.
A back-dated HMRC discovery assessment, covering years of unregistered activity, is far more disruptive than getting a clear answer upfront. The penalty clock runs from the date the obligation arose. Early assessment is always the lower-cost option.
A qualified UK tax adviser familiar with Pakistan-UK cross-border situations can provide a formal PE assessment and advise on treaty protections. See our Avoiding Double Taxation guide for treaty protections between Pakistan and the UK.
Non-resident company UK tax liability under HMRC's rules is not always visible until a letter arrives - and by then, the clock on penalties has already been running.
If you are a Pakistani business owner, NRP, or foreign firm with UK clients, UK-based staff, or any UK-facing operations, a proper PE and VAT exposure assessment is the right first step. This is not about changing your structure. It is about knowing where you stand right now, before HMRC decides to tell you.
Stop guessing. Secure your UK operations against discovery assessments before they become back-dated problems.
Talk to a specialist who understands both HMRC requirements and the cross-border realities of Pakistani firms operating in the UK.
Only if it has a Permanent Establishment in the UK or earns income from UK property or land. Pure sales to UK customers from abroad - where all work is done outside the UK and no one in the UK has contract authority - generally do not trigger Corporation Tax.
Either a fixed place of business used regularly for core operations (including co-working spaces used consistently), or a dependent agent who habitually concludes contracts on the company's behalf in the UK.
An independent contractor working for multiple clients is usually not enough to create PE. A dedicated UK-facing business development person who agrees terms and commits to contracts - that very likely is.
Generally no - not for Corporation Tax. Having UK buyers alone does not make income UK-sourced. VAT obligations can arise independently though, especially for digital services sold directly to UK consumers. Customers alone are not the trigger. Operations are.
The direct effect on a non-resident company is limited. The bigger change is personal: if you spend meaningful time in the UK, your own worldwide income may now be taxable there under the new residence-based rules. This affects how you draw income from your business and how foreign income is treated.
There is also a structural angle - if key business decisions are being made while you are physically in the UK, management and control questions can arise. The Statutory Residence Test now governs this.
Yes, potentially. If that worker has the authority to conclude contracts on behalf of your firm and does so regularly, HMRC may treat this as an agent-based Permanent Establishment - even if your company has no UK office anywhere. The job title does not matter. What matters is the actual authority the person exercises.
No. The treaty is a prevention of double taxation - not a tax exemption. Many Pakistani business owners believe the treaty means they do not need to file or register in the UK. That is not correct.
If your business genuinely has a UK PE under the treaty's own rules, UK Corporation Tax applies to PE-attributable profits. The treaty stops Pakistan taxing those same profits again - it does not remove the UK's right to tax them first. You may still need to register and report in the UK regardless of the treaty.
An NETP is a business not based in the UK that makes taxable supplies in the UK. NETPs must register for VAT from the very first taxable UK supply - there is no £90,000 threshold. This applies to foreign firms selling goods or digital services directly to UK consumers, regardless of total turnover.
Within 3 months of the start of the accounting period in which the PE or chargeable obligation began. Penalties apply from that original date - not from when HMRC contacts you. This is why early self-assessment matters. The longer a PE exists without registration, the larger the exposure becomes.
Yes, it can. If your business regularly uses a dedicated desk or space at a UK co-working facility to carry out core business activities, HMRC may treat that as a fixed place of business PE. The test is not whether you own the space - it is whether you use it regularly for substantive business operations, not just preparatory or auxiliary tasks.
Non-resident company UK tax liability is not always visible until a letter arrives - and by then, the penalty clock has been running for months or years. Stop guessing. Secure your UK operations against discovery assessments before they become back-dated problems.