Company Taxation and Covid-19

5 May 2020

As a result of the Covid-19 pandemic and the restrictions placed on international and domestic travel, individuals and businesses are having to adapt to different working practices.  Many senior executives and directors are working from home, and some may find themselves in the position where they are unable to leave the UK to travel home or to their normal place of work.

In this briefing we look at how the tax position of companies may be affected in situations where key employees and directors presently stuck in the UK are consequently spending more time working in the UK and conducting business activities in the UK than would ordinarily be the case.

Company Residence

For UK tax purposes, a company is resident in the UK if it is registered in the UK or if its place of central management and control is in the UK.  Central Management and Control for these purposes usually refers to the highest level of management, i.e. the place where board meetings are held in which strategic and key decisions are made.

If senior executives are stranded in the UK, key decision making and board meetings may need to take place in the UK.  There is concern that this could lead to a change in the place where the management of the company is carried out, and consequently could trigger a change in the residence of the company.

HMRC has published guidance in which they state that they are sympathetic to companies who find themselves affected by Covid-19 in this way.  They do not consider that a company will necessarily become resident in the UK because a few board meetings are held in the UK, or because some decisions are taken in the UK over a short period of time.  They will take a holistic view of the facts and circumstances of each case.

The guidance can be found at the following link:

This is a welcome clarification from HMRC, although companies who are affected should keep records and evidence to support their case should the position be queried by HMRC at a later date.

Permanent Establishment (PE)

There are two instances in which a non-UK resident company can be considered to have a PE in the UK:

  • Where it has a fixed place of business in the UK through which it carries on its business, or
  • Where an agent acting on behalf of the company has and habitually exercises authority to carry out the company’s business in the UK

A fixed place of business is unlikely to be created in circumstances where key executives are required to work from home for the duration of the UK’s temporary ‘lockdown’, particularly as the company has no control over the home office.

Under the agency rule, if a director finds himself in a position where he is concluding contracts on behalf of a non-UK resident company while stranded in the UK, the question is whether this might create a PE in the UK and, consequently, UK tax liabilities for the overseas company.

The phrase ‘habitually exercises’ is key to determining whether an agency PE exists.  In circumstances where a director is having to negotiate and conclude contracts in the UK for the temporary period of time in which he is unable to leave the UK is unlikely to meet the ‘habitually’ test.  In their published guidance, HMRC state that they are sympathetic to this situation.


It is reassuring that HMRC guidance explicitly addresses these issues, and confirms that changes to normal business operations arising exclusively as a result of the Covid-19 crisis should not affect the UK tax position of a non-resident company.

Where there is any doubt, however, professional advice should be taken.  Verfides can assist with all aspects of UK tax advice in relation to companies, including advice on company residence, the creation of permanent establishments, double tax treaties, and corporate structuring for international businesses.  Verfides also specialises in advising company directors, shareholders and employees in relation to their personal tax position.

For further assistance and advice, please contact the Verfides tax team on 0207 930 7111.

London, May 2020





This document has been prepared as a general guide and is based on the latest legislation and case law.  Whilst every care has been taken in its preparation, Verfides cannot accept any responsibility for any person relying on this publication.  Professional advice should be obtained before undertaking transactions and Verfides will be pleased to provide such advice where appropriate.


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