UK tax for Indian businesses

The India–UK CETA has arrived. Here is what Indian businesses need to understand about UK tax, compliance, and advisory obligations.

The deal and the questions it raises

The UK and India signed their Comprehensive Economic and Trade Agreement (CETA) on 24 July 2025. The business community reacted positively. Indian companies announced UK investments in the weeks that followed. Then the practical questions started. How should I structure my UK entity? Do I need VAT registration from day one? What does HMRC expect from my intercompany pricing? How do I handle payroll for staff I second from India? Understanding UK tax for Indian businesses is essential before you take your first step.

What the India–UK CETA actually does

The agreement eliminates tariffs on roughly 99% of Indian goods entering the UK. This covers textiles, pharmaceuticals, chemicals, gems, jewellery, leather goods, and more. As a result, Indian products land in the UK cheaper. This makes you more competitive against domestic producers and other exporters. However, the India–UK CETA goes well beyond tariffs. It includes a dedicated financial services chapter. Notably, this is the first such chapter in any Indian trade agreement. It gives Indian banks, insurers, and fintechs legal certainty in the UK market. In addition, a digital trade chapter eases how Indian IT firms operate in Britain. Furthermore, new mobility commitments support the movement of Indian professionals. For Indian businesses already in the UK, the deal does not automatically simplify your tax position. Instead, it increases the commercial incentive to get that position right. You need to act now, before ratification drives a surge of competitor activity.

The four tax questions every Indian business must answer

UK tax for Indian businesses centres on four key areas. We explore each one below.

1. How should I structure my UK presence?

This is the most fundamental decision for any Indian business entering the UK. You have two primary options: a UK branch or a UK private limited company (subsidiary). A branch is not a separate legal entity. It is an extension of the Indian parent. UK Corporation Tax applies to the branch’s profits. However, the parent remains directly liable for all obligations. There is no ring-fencing of liability. Consequently, branches suit short-term market testing or regulated sectors. By contrast, a subsidiary is a separate UK legal entity. Its profits are taxed in the UK independently. It can access the UK’s double taxation treaties. It can also claim reliefs such as capital allowances. Additionally, a subsidiary presents a more familiar structure to UK banks and customers. For these reasons, most Indian businesses choose the subsidiary route. Your choice also affects how you repatriate profits. The UK does not impose withholding tax on outbound dividends under domestic law. Therefore, dividends from your UK subsidiary flow to India without UK deduction. However, Indian tax may apply on receipt. The India–UK Double Taxation Convention governs the interaction between both jurisdictions.

2. What are my transfer pricing obligations?

Transfer pricing is where we most often see Indian businesses caught out. The rules require arm’s length pricing for transactions between connected parties. This includes your UK subsidiary and its Indian parent or sister companies. Put simply, prices for goods, services, or intellectual property must reflect open market terms. HMRC’s regime applies to all businesses with cross-border related-party transactions. Certain exemptions exist for small and medium-sized enterprises. However, many Indian businesses wrongly assume they qualify for exemption. The consequences of getting it wrong are serious. These include penalties, interest, and back taxes. Therefore, you should establish a transfer pricing policy before transactions begin. Document it properly and review it every year. This is straightforward when done from the outset. It becomes far more expensive under an HMRC enquiry.

3. What UK tax reliefs can I claim?

The UK offers several reliefs that Indian-owned businesses underuse. Often, businesses simply do not know they exist. Others assume they do not apply to foreign-owned entities. Understanding UK tax for Indian businesses means knowing what you can claim. R&D tax credits reward UK companies that invest in qualifying research and development. Since April 2024, the UK operates a merged R&D expenditure credit (RDEC) scheme. The credit rate is 20% of qualifying expenditure. Indian technology, pharmaceutical, or engineering subsidiaries may carry out qualifying activity. This includes product development, process improvement, and software engineering. Surprisingly, many eligible businesses still do not claim. Capital allowances let you deduct qualifying capital expenditure against taxable profits. The UK’s full expensing rules took effect in April 2023. The government made them permanent later that year. They allow a 100% deduction for qualifying main rate plant and machinery. For Indian businesses investing in UK plant and machinery, this is a significant benefit. Patent Box applies a reduced 10% Corporation Tax rate to profits from patented inventions. The standard headline rate is 25%. Indian pharmaceutical and technology groups with UK patents should assess their eligibility.

4. What are my payroll and employer obligations for Indian staff?

Many Indian businesses plan to second staff from India initially. This is entirely legitimate. However, it creates specific tax and employment obligations. A secondee in the UK generally becomes liable to UK Income Tax and National Insurance. The India–UK Double Taxation Convention provides relief against double taxation. Yet it does not remove UK filing and payment obligations. Your UK entity must typically operate PAYE on the secondee’s UK-source income. This can prove complex where the package was designed for Indian tax purposes. Additionally, the Double Contribution Convention (DCC) accompanying the CETA offers valuable relief. It exempts Indian workers and employers from UK National Insurance for up to three years. As a result, it can significantly cut costs for businesses seconding staff. Critically, a senior secondee directing the UK operation may create permanent establishment risk. This could make the Indian parent liable to UK Corporation Tax. Therefore, a small amount of upfront advice can prevent a much larger problem.

The India-UK CETA adds new dimensions

Beyond the core questions of UK tax for Indian businesses, the CETA raises additional considerations. The agreement’s rules of origin determine whether goods qualify for preferential tariffs. These rules affect your invoicing, customs documentation, and accounting systems directly. To benefit from reduced rates, goods must meet the origin criteria. You must document and declare origin correctly at the border. Errors can lead to lost preferences and potential penalties. Similarly, the digital trade chapter simplifies how Indian IT firms serve UK clients. However, it does not resolve whether those services create a UK taxable presence. Significant digital presence rules and permanent establishment risk remain live issues. Therefore, Indian tech companies with UK-based teams still require specialist advice. The financial services chapter provides a framework for Indian banks, insurers, and fintechs. Yet FCA authorisation requirements remain unchanged. Understanding the interaction between the CETA and the FCA gateway is essential.

Get your position right – now

Both governments continue to work towards full implementation of the India–UK CETA. The businesses that benefit most will act before entry into force. This means choosing the right structure, building your compliance framework, and securing expert advice. Every business is different. The right answers depend on your sector, group structure, and long-term ambitions. However, one thing is consistent across almost all Indian businesses entering the UK. The decisions you make in the first few months have consequences that last for years. If you are expanding into the UK, or if you are already here, get in touch. We are specialists in UK tax for Indian businesses. Ecovis covers corporate structuring, tax compliance, transfer pricing, and payroll. Through Ecovis International, we support you in India, the UK, and over 90 other jurisdictions. Speak with our team today