ACCA Advanced Taxation (ATX) Practice Exam

What types of companies are charged UK tax on profits from a permanent establishment within the UK?

1. Only UK resident companies.

2. Only non-UK resident companies.

3. Both UK and non-UK resident companies.

4. Only subsidiaries of UK companies.

The correct answer is: Both UK and non-UK resident companies.

Companies that operate a permanent establishment within the UK are subject to UK taxation on their profits earned from that establishment, regardless of whether they are UK resident or non-UK resident. This is a fundamental principle of the UK's taxation system. For UK resident companies, their worldwide profits, including those from any permanent establishment they may have abroad, are taxable in the UK. Conversely, non-UK resident companies are only taxed on profits sourced from their UK operations, meaning if they have a permanent establishment in the UK, they will be liable to UK tax on the income generated from that establishment. This dual approach ensures that all entities benefiting from UK operations contribute to the UK tax system, promoting fairness and compliance. The inclusion of both UK and non-UK resident companies in this taxation framework enables the UK to effectively tax profits derived from its jurisdiction, irrespective of the company's residency status.