I don't use PayPal so I don't know how it interacts with Apple. I don't know if PayPal is telling Apple you are using a UK based address and that is the problem, or if it is something else. The problem may be if you are not living in the UK there may be no way of resolving this without changing your account country to one where you do reside.
If you absolutely must use PayPal then you will have either have to contact PayPal about this, or ask Apple. I provided a PayPal link earlier. Here's one for Apple:
Refer to this page for Apple Support features ➔ Contact - Official Apple Support
Select from the presented options until you find a solution for your issue, or see if there is a chat or phone call contact method offered lower on the page under “Get more help” (you sometimes have to narrow down the options multiple times before this is shown). If you do not see your issue, keep experimenting with any series of selections until you reach one that offers a chat session or a telephone call and get the representative to redirect you.
This support article has various country telephone numbers for contacting Apple for support and service ➔ Contact Apple Support - Apple Support For some countries look under “Other” listing at the end of the list. Not every country has telephone support, and phone numbers may only work when calling from the same country.