An overseas business can trade in the UK through a branch, which is part of the overseas company itself, or through a subsidiary, which is a separate UK incorporated company. A subsidiary is UK resident and pays corporation tax on all its profits; a branch that is a permanent establishment pays corporation tax only on the profits attributable to it, measured as if it were a separate enterprise. The rates are the same, so the real differences lie in public filing, how profits are measured and sent home, loss relief and legal liability.

When does the UK get to tax an overseas business at all?

A company that is not UK resident is within the charge to corporation tax on trading income only if it trades in the UK through a permanent establishment, deals in or develops UK property, or has UK property income (section 5(2) of the Corporation Tax Act 2009). Selling into the UK from abroad does not on its own create a charge. The tests for a fixed place of business or a dependent agent are explained in permanent establishment for overseas companies. This page assumes the business has decided to put people and premises in the UK and is choosing the vehicle.

How is a UK subsidiary taxed?

A company incorporated in the UK is UK resident for corporation tax purposes, whatever any other rule of law says (section 14 CTA 2009). As a UK resident company it is chargeable on all its profits wherever they arise (section 5(1)). For the financial year starting 1 April 2026 the main rate is 25% on profits over £250,000 and the small profits rate 19% on profits up to £50,000, with marginal relief in between. Both limits are divided by the number of associated companies, so in a large group the 19% rate and marginal relief are often of little practical use.

The subsidiary must register for corporation tax, file its own CT600 and deliver accounts to Companies House each year under section 441 of the Companies Act 2006. See registering for corporation tax.

How is a UK branch taxed?

A non UK resident company trading through a UK permanent establishment pays corporation tax on its “chargeable profits”: trading income arising directly or indirectly through or from the establishment, and income from property or rights used or held by it (section 19). Profits are attributed under the separate enterprise principle in section 21: what the establishment might be expected to make if it were a separate and independent enterprise doing the same or similar activities, taking account of the functions performed, assets used and risks assumed through it.

Two assumptions in section 21(2) often decide the figures. The branch is treated as having the same credit rating as the whole company, and as having the equity and loan capital it could reasonably be expected to have as a separate enterprise. The second means a branch cannot simply deduct all the interest the head office allocates to it: if the branch would need more equity as a standalone business, part of the interest is disallowed. Section 20 requires the rules to be read consistently with the OECD’s 2010 Report on the Attribution of Profits to Permanent Establishments and the OECD Transfer Pricing Guidelines.

What does each option mean at Companies House?

Branch Subsidiary
Registration Return under the Overseas Companies Regulations 2009 within one month of opening the UK establishment (regulation 4) Incorporation of a new UK company
Accounts filed Copies of the whole company’s accounting documents, including any consolidated group accounts, as disclosed under its home law (regulations 31 and 32) The subsidiary’s own accounts under the Companies Act 2006
Legal person The overseas company itself A separate company

The accounts point is easy to miss. A branch puts the parent’s accounts, and possibly the group’s, on the UK public register, while a subsidiary discloses only its own results, subject to the usual small company filing options. The branch registration rules are covered in registering an overseas company’s UK establishment.

How do profits get back to the parent?

  • Branch. The branch is the same legal person as the head office, so moving cash home is not a payment between two persons and there is no UK withholding on it. Internal “interest” or “royalties” between the branch and head office are not payments between separate persons; their effect is dealt with through the attribution rules.
  • Subsidiary, dividends. HMRC’s international manual (INTM343510) confirms that UK dividends do not have income tax deducted, so profits can be paid up as dividends without UK withholding.
  • Subsidiary, interest and royalties. Yearly interest on a loan from the parent and royalties for group intellectual property normally carry 20% UK withholding unless a treaty reduces it. Interest needs an HMRC direction before a treaty rate can be used; royalties can be paid at the treaty rate on reasonable belief. See UK withholding tax on interest and royalties.

Prices charged between the subsidiary and the rest of the group must be at arm’s length where the transfer pricing rules apply, which raises the same functional questions as attributing profit to a branch. See transfer pricing for smaller businesses.

What happens if the UK operation makes losses?

A loss making subsidiary can carry its losses forward against its own future profits, and can surrender them to other UK companies in the same group under group relief.

A branch’s losses belong to the overseas company, so its home country may let them reduce head office profits. The UK limits double use. Under section 107 of CTA 2010, a non UK resident company can surrender a loss to UK group companies only so far as it relates to activities within the UK charge, is not exempt under a treaty, and is not deductible from non UK profits of any person for foreign tax purposes. In practice a start up branch whose losses are already used abroad has nothing to surrender in the UK.

How does it compare in a simple case?

Illustration only. Parent Co, resident in Country M, opens a UK sales office expected to make £400,000 profit a year. It has five other group companies worldwide.

Point Branch Subsidiary
UK tax base Profit attributed to the UK office Whole profit of UK Co
Rate 25% 25%
Parent funding by £1m loan Interest allowed only to the extent consistent with the capital a separate enterprise would have Interest deductible subject to transfer pricing and the corporate interest restriction; 20% withholding unless treaty clearance
Paying profits home No UK withholding Dividends with no UK withholding
Public accounts Parent’s accounts filed in the UK UK Co’s accounts only

The home country’s rules then decide whether branch profits or subsidiary dividends are taxed again there, and whether credit is given for UK tax.

What mistakes come up most often?

  • Opening a UK office, or using a UK agent who habitually concludes contracts, without realising a permanent establishment, and for an office a Companies House registration, may have been triggered.
  • Treating the branch accounts as a simple recharge of costs, with no profit attributed for the functions and risks in the UK.
  • Allocating head office debt to the branch without testing whether a separate enterprise would carry that much.
  • Paying interest on a parent loan to a UK subsidiary gross before HMRC has issued a treaty direction.
  • Assuming branch losses can be group relieved in the UK when they have already been deducted abroad.
  • Forgetting that a branch files the parent’s accounts publicly in the UK.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.