Understanding the central management and control test UK is critical for companies operating across borders. This test determines where a company is considered resident for UK corporation tax purposes, and, if applied incorrectly, can lead to unexpected and significant tax liabilities. In this article, we explain what the central management and control test UK actually means, how it is applied, and what directors and owners should do to comply and manage risk.
What Is the Central Management and Control Test UK?
In UK tax law, corporate residence is not determined solely by where a company is incorporated. Instead, under UK domestic rules, a company is resident for tax purposes if its central management and control test UK indicates that strategic decision-making takes place in the UK. This principle means the highest level of control and direction of the company must actually “abide” in the UK for the company to be UK resident and therefore subject to UK corporation tax on worldwide profits.
The central management and control test UK originates from longstanding UK case law, such as De Beers Consolidated Mines Ltd v Howe. In that case, the court held that a company’s residence depends on where its real business is carried on, and that the real business is where the central management and control actually occurs. We examined this topic further in our recent article on corporate restructuring.
How the Central Management and Control Test UK Works in Practice
The key question under the central management and control test UK is factual: where are the strategic decisions of the company taken? Answers involve examining the board’s functioning and where ultimate control resides.
Board Meetings and Strategic Decisions
One of the most important indicators under the central management and control test UK is where the board of directors meets and takes decisions. If board meetings occur in the UK and major policy decisions (such as approving strategy, budgets, financing and acquisitions) occur in the UK, this points to the central management and control being in the UK.
However, it is not merely a formal exercise. HMRC will look at the substance of the meetings, not just the address on the memorandum. Simply holding a meeting outside the UK might not be enough if the real decision-making happens in the UK.
Where Directors Physically Make Decisions
Another key aspect of the central management and control test UK is the location of directors when they actually make strategic decisions. The place where directors exert control, even informally, can be decisive. For example, if directors based in the UK routinely direct decisions while abroad in ad hoc discussions, HMRC may conclude that central management and control resides in the UK.
Question of Fact and Holistic Review
The central management and control test UK does not rely on a single factor alone. Rather, it is a question of fact based on all relevant evidence. Board meeting locations, minutes, execution of documents, director residence, and actual decision-making will all be relevant. Occasional UK meetings may not by themselves be sufficient to establish residence if the company’s management properly operates elsewhere.
Why Central Management and Control Matters
The central management and control test UK has major tax implications:
Tax Residence and Corporation Tax
A company that is treated as UK tax resident under the central management and control test UK is liable to UK corporation tax on its worldwide profits. This is a broad tax base and may impose significant liabilities if not anticipated.
Non-UK Companies and UK Tax
Overseas companies can also be treated as UK tax resident if their central management and control is in the UK. This means a foreign company could inadvertently trigger UK tax liabilities if strategic control ends up in the UK under the central management and control test UK. As we have recently seen, the UK has introduced a substantial reform of its Permanent Establishment with most changes applying from 1 January 2026.
Dual Residence and Double Tax Treaties
Sometimes a company might appear tax resident in two countries. In such cases, tax treaties often apply a “place of effective management” tie-breaker which is similar to but not identical to the central management and control test UK. Tax authorities must then agree where the company’s residence should be under the treaty.
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Common Scenarios and Misconceptions
Directors Working Remotely
A common misconception is that remote working means a company will inevitably lose UK residence. While remote board participation can be a factor, the central management and control test UK still requires a holistic look at the facts. Occasional UK meeting participation doesn’t automatically establish residence if substantive control is genuinely exercised elsewhere.
Board Meeting Location Is Not Always Determinative
Although the location of board meetings is an important aspect of the central management and control test UK, it is only one factor. Courts and HMRC will also consider where decisions are agreed and implemented in substance.
Practical Steps to Manage Central Management and Control Risks
Given the importance of the central management and control test UK, companies with cross-border ties should take practical steps to manage risk around tax residence:
Clear Governance Documentation
Keeping detailed minutes and evidence of where key decisions are taken helps demonstrate where central management and control resides.
Board Composition and Meeting Practices
For non-UK companies that need to avoid UK residence, holding board meetings outside the UK and ensuring a majority of non-UK directors with genuine competencies is critical.
Substance Over Form
The central management and control test UK emphasises substance. Companies should avoid scenarios where decisions are taken informally in the UK, even if formal meetings are held abroad.
Proactive Tax Advice
Given that the central management and control test UK involves factual assessments, obtaining specialist tax advice before restructuring governance or operations can mitigate unintended tax risk.
Conclusion
The central management and control test UK remains a cornerstone of UK corporate tax residence rules. It focuses on where strategic decision-making and control actually resides, rather than just where a company is incorporated or where its register is held. Because it is highly fact-specific, companies must carefully document governance and decision-making and obtain appropriate tax advice to manage risks.
If you are dealing with cross-border corporate structures and want to ensure compliance with the central management and control test UK, it’s essential to assess your governance framework and board practices carefully, and to seek professional advice where needed.