The initiative is part of an educational awareness campaign targeting large businesses, highlighting common issues with management expenses.
The UK’s tax authority, HMRC has written to holding companies with overseas subsidiaries urging them to review the tax treatment of management expenses claimed where those expenses may benefit a connected party.
The letters are part of an educational awareness campaign targeting large businesses, highlighting common issues with management expenses. HMRC has identified companies that claimed relief and specified the relevant periods. Recipients are asked to review HMRC guidance on management expenses and check their tax returns for inaccuracies.
HMRC reminded companies that expenses “with a distinct benefit to a connected party” are only deductible if incurred as part of a trade providing services to that connected party. In such cases, a service fee should be charged in line with transfer pricing rules, including the arm’s length principle.
Companies finding inaccuracies in tax returns are advised to amend them and notify HMRC. If a return is out of time for amendment, companies should contact HMRC. HMRC said adjustments made following the letter may be treated as unpromoted for penalty purposes, but future investigations into management expenses claims will be treated as prompted.
The tax authority recommends sharing the letter with the group’s UK senior accounting officer and advisers where appropriate. A copy has also been sent to the group’s corporation tax agent.
