The UK permanent establishment test: an SEIS/EIS briefing for founders

Why it matters

Every company wishing to make use of (S)EIS must have a permanent establishment in the UK, and HMRC will refuse advance assurance if the company's trade happens abroad. This paper covers both companies incorporated in the UK and, especially, companies incorporated overseas that have registered a UK establishment at Companies House. A UK incorporation or a UK registration is not, by itself, a UK permanent establishment.

Companies incorporated in the UK. Most UK companies pass without comment. In our experience, HMRC raises a query when either:

• no director lives in the UK, which HMRC checks against the directors' country of residence at Companies House; or
• the application indicates that all material activity is outside the UK, for example an overseas team, an overseas operating subsidiary, overseas customers and sites, or an answer saying the company does no trading in the UK.

A virtual office address can also prompt questions, but where UK-resident directors run the business from the UK, those are usually settled by showing where the work actually happens.

Companies incorporated overseas and registered in the UK. These face the test head on. Registering a UK establishment at Companies House, using a UK service address and appointing a UK director are filings and appointments, not evidence that the business is carried on here. HMRC will expect the company itself to show a real UK place of business, or a UK agent concluding its trading contracts. An overseas parent of a UK subsidiary also needs its own UK permanent establishment.

The test must be met throughout Period B, starting from the date the shares are issued, so investors' relief depends on it for years, not just at advance assurance.

The law

Two sections of the Income Tax Act 2007 (ITA 2007) impose the requirement, and a third defines it.

Under s.191A(2), a company has a UK permanent establishment only if:

1. Fixed place of business: it has a fixed place of business in the UK "through which the business of the company is wholly or partly carried on"; or
2. Agent: an agent acting on its behalf "has and habitually exercises there authority to enter into contracts" on the company's behalf.

The rest of s.191A narrows both limbs:

• s.191A(3): a fixed place of business includes a place of management, branch, office, factory or workshop.
• s.191A(4)–(6): a fixed place or an agent does not count if, "in relation to the business of the company as a whole", the activities are "only of a preparatory or auxiliary character". Examples include storing or displaying goods, purchasing goods and collecting information.
• s.191A(7): an independent agent, such as a broker or commission agent acting in the ordinary course of its business, does not count.
• s.191A(8): controlling a UK-resident company, or one that carries on business in the UK, does not by itself give the parent a UK permanent establishment.

The requirement replaced the old rule that the trade be carried on "wholly or mainly" in the UK, from 6 April 2011. The definition follows Article 5 of the OECD Model Tax Convention.

The Venture Capital Schemes Manual

HMRC's guidance is in VCM13020 (the EIS requirement), VCM13030 (the meaning of permanent establishment) and VCM34050 (the SEIS equivalent). HMRC's refusals also cite its international manual, INTM261010, on dependent agents.

The points that decide most cases:

• Only the issuing company counts. HMRC looks at the business of the company applying, not the group. As HMRC puts it in its queries, "an overseas parent company must itself have a permanent establishment in the UK for it to qualify". A UK subsidiary does not give it one.
• The activity must be essential. The question is whether what happens in the UK forms an "essential and substantial part" of the business as a whole. Preparatory or auxiliary activity does not count.
• Agents must bind the company on its real business. The agent must habitually use authority to conclude contracts relating to the company's substantive business, not to preparatory or auxiliary matters. INTM261010 adds that the authority must relate to the core business activities carried out in the UK.
• An employee is not enough. VCM13030 states that maintaining a UK employee alone does not guarantee a permanent establishment.
• A UK parent company is treated differently. VCM13030 says a UK parent carrying out its parent-company functions (administration and management) from a fixed place in the UK is likely to have a permanent establishment, wherever its trading subsidiaries are. That helps only where there is a real UK place of business, not a registered-office address.
• Permanence. HMRC's refusals add that a fixed place of business must have "a certain degree of permanency and be utilised regularly", and a director's home used for administration is not "at the disposal of the enterprise" in that way.

The key tests

You need only one limb, but it must be one where the company's actual trade happens in the UK.

Test 1: a fixed place of business

• A real place, regularly used. An office, workshop, studio or similar, in the company's name, used regularly and with some permanence. A short-term co-working desk will be challenged.
• The trade happens there. Product development, customer delivery, sales and operations count. Storing goods, collecting information or receiving post do not.
• Not a virtual office. HMRC knows the common formation-agent and mail-forwarding addresses, and treats them as evidence of nothing.
• Home offices are borderline. A director's home used for administration does not count. A room at home where the founder and staff actually do the work every day, evidenced with bills and photos, has been accepted alongside other evidence.

Test 2: a dependent agent

• Usually a UK-resident director or senior employee, not an outside broker, formation agent or commission agent.
• Real authority. The person must be able to bind the company without anyone else's approval, recorded in a service contract or board resolution.
• Used habitually. They must actually sign contracts regularly, not just once.
• On the core trade, in the UK. The contracts must relate to trading activity carried on in the UK: customer, supplier and delivery contracts. Signing contracts in the UK for a trade carried on entirely overseas does not count.

The exclusion that catches most applicants: preparatory or auxiliary activity

Running the company and raising money are not the trade. In refusing one application, HMRC said:

"if the director is conducting other activities of the company within the UK, such as management activities or raising finance, it is likely that these would only constitute activities that are preparatory or auxiliary in nature, when compared to the activities of the company as a whole."

The following do not, on their own, create a UK permanent establishment:

• fundraising, investor meetings and investor relations;
• board meetings and general management by a UK director;
• a registered office, service address or mail handling;
• banking, accounting and other administration;
• research or information-gathering ahead of trading.

What does count is the company selling to, serving or building for its customers from the UK, or a UK person habitually concluding the company's trading contracts. The one exception for management is a UK parent company running its group from real UK premises, which VCM13030 says is likely to qualify.

What we see

HMRC raises permanent establishment whenever the application shows a virtual office, an overseas director or team, or an overseas parent. A typical query asks:

• "What day to day activities are carried out at the UK permanent establishment and by whom?"
• Evidence of a fixed place of business, or of an agent who habitually concludes contracts: "invoices showing the business address, utility bills or bank statements".
• A copy of the UK premises lease, a PAYE reference, or a representative UK employment contract.
• Any agent's contract, plus contracts the agent has actually signed (in one case, from "the last 3 months").
• How often directors visit, UK customer contracts, UK banking, and UK revenue and expenses.
• For an overseas company or parent, the commercial rationale for the structure.

Outcomes from queries FounderCatalyst has handled (anonymised):

The pattern: approvals came where a UK person genuinely ran and contracted for the trade, or where there was a real UK workplace. Refusals came where the UK presence was a parent-company link, a mailbox, or management with the trade elsewhere.

Case study: a UK director is not enough on its own

A UK-incorporated coliving and coworking start-up was refused SEIS and EIS advance assurance in August 2025. Permanent establishment was one of two reasons. It shows exactly where the line sits.

The facts. The company's sites were outside the UK. Its only UK address was a well-known virtual-office address in London. Its sole director lived in the UK.

What HMRC asked. In its second-round query, among questions on the business model, HMRC asked: "What trading activity is carried out in the UK and who is this carried out by?"

What the company said. "We do not undertake any trading activities in the UK. We believe we meet the Permanent Establishment test by virtue of ITA07/S191A 2b – I am the only Agent / stat director of the company and routinely exercise authority in the UK to enter into contracts on behalf of the company."

What HMRC decided. HMRC rejected both limbs:

• Fixed place of business: no. The registered address was one "which offers registered office services, Mail handling and forwarding and Virtual office packages", with no evidence "that it has been used for any actual activities of the company". A director's home used for administration "would not be considered to be at the disposal of the enterprise". And with no trading in the UK, "the absence of business operations in the UK precludes the establishment of a fixed place of business".
• Dependent agent: no. "The contracts in question do not relate to any trading activity carried out in the UK." Citing INTM261010, HMRC said a dependent agent arises "only where the agent's authority relates to the core business activities of the enterprise carried out in the state concerned. The mere conclusion of contracts from within the UK, in the absence of any UK-based trading activities, does not satisfy the requirements".
• Management and fundraising: auxiliary. "If the director is conducting other activities of the company within the UK, such as management activities or raising finance, it is likely that these would only constitute activities that are preparatory or auxiliary in nature, when compared to the activities of the company as a whole."

HMRC's conclusion: "The director's presence and contractual authority in the UK, without any associated UK trading activity, are insufficient to meet the threshold for there being a Permanent Establishment for SEIS and EIS purposes." There is no right of appeal against a refusal of advance assurance.

The lessons.

1. A UK director signing contracts is necessary but not sufficient: the contracts must be for trading activity carried on in the UK.
2. Never tell HMRC the company does no trading in the UK and then rely on the agent limb; the two statements cancel each other out.
3. A business whose customers, sites and delivery are all overseas will struggle to pass, whatever its UK paperwork. Test this before applying, not in response to a query.