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UK groups and larger companies

Below, we’ve detailed a summary of potential compliance deadlines for larger corporates or corporate groups (no matter how small).

Deductions Allowance

As a result of the Corporation Tax reform of loss relief, affecting accounting periods ending on or after 1 April 2017, all companies and groups of any size face additional administrative burdens, on utilising bought forward losses.

Affected companies must claim a ‘deductions allowance’ in order to be entitled to use losses in excess of 50% of taxable profits up to a maximum of £5 million per annum. Where annual profits exceed £5 million, the company is restricted on the use of almost all bought forward losses to 50% of the amount of profits in excess of £5 million.

Example

A company with £12 million profits remaining after deducting any in-year reliefs will be entitled to cover a maximum of £8.5 million profits by brought-forward losses; providing they are entitled to the full £5 million deductions allowance. The £8.5 million is calculated by subtracting the £5 million deductions allowance and 50% of the remaining profits of £7 million (i.e. £12 million minus the £5 million deductions allowance). The result of this is that our example company will pay tax on £3.5 million (i.e. £12 million minus £8.5 million).

The restriction has effect for profits arising from 1 April 2017 but applies to almost all losses brought forward, including those arising before 1 April 2017.

Additionally, where a company is a member of a group, the £5 million deductions allowance is shared amongst the UK group members as necessary. A company within the group must be ‘nominated’ to allocate the deductions allowance and submit a ‘group allowance allocation statement’ detailing how the allowance has been allocated on or before the first anniversary of the filing date for the return the statement relates to.

Corporate Interest Restriction (CIR)

The CIR rules were introduced in Finance (No.2) Act 2017, to implement the OECD (Organisation for Economic Co-operation and Development) BEPS (Base Erosion and Profit Shifting) project recommendations. CIR applies to periods of account starting on or after 1 April 2017.

The aim of the CIR rules is to restrict a company/group’s deductions for interest expense and other financing costs (such as expenses incurred in the raising of finance) to an amount which is proportionate with its activities in the UK, taking into account how much the group borrows from third parties.

Groups/companies with less than £2 million of net interest expense per annum will not suffer any restriction and are therefore not affected by the new rules, unless their circumstances are expected to change over the next 5 years.

Where a group must submit, or chooses to submit an interest restriction return, the group can appoint a company to be responsible for filing the interest restriction return each year on behalf of the group; the ‘reporting company’. If you appointed a reporting company in respect of a 2017 year-end before 30 June 2018, you need to file a 2017 nil or full interest restriction return before 31 December 2018.

Country by Country (CbC) reporting

CbC applies to Multi-National Enterprise (MNE) groups with consolidated turnover of €750 million and above. An MNE Group is a group with entities in more than one tax jurisdiction, whether this is as a resident or through a Permanent Establishment.

The limit applies to the worldwide group as a whole, if you are part of a larger multi-national group then this requirement may apply to you for accounting periods starting on or after 1 January 2016.

Affected groups are required to submit CbC reports detailing information about global activities, profits and taxes for each tax jurisdiction for which they do business. Reports must be prepared using the XML schema format provided by the OECD and submitted within 12 months after the last day of the reporting fiscal year of the MNE group.

Not only does the group need to submit a CbC report within the 12 month deadline but they also need to make an annual notification for the subsequent period confirming the entity that intends to file the CbC report for the following year.

UK subsidiaries of large MNE’s with overseas parents will need to determine if filings are being made in the parent territory. If this is the case and certain criteria are met, such filings exempt them from submitting CbC reports. However, in such circumstances, each UK Company in an MNE has to notify HMRC of certain information about the group CbC reporting and how the UK details are covered. Again, this is by the same 12 month deadline.

For those with a year end of 31 December, the following submissions must be made by 31 December 2018:

  • Submission of the full CbC report for 2017 or notification to HMRC where filing is being made by an overseas parent company; and
  • Notification of the company intending to make the 2018 report filing.

Tax Strategy

MNE groups, partnerships caught by the CbC rules and Companies caught by either of the CbC rules or the Senior Accounting Officer requirements in the UK (applicable to those with combined UK turnover in excess of £200 million or UK balance sheet gross assets in excess of £2 billion) are required to publish a tax strategy for all accounting periods beginning on or after 15 September 2016.

In advance of the period end the strategy must be in place on the internet in the form of a separate document or self-contained part of a wider document and it needs to detail the entity/group’s approach to tax risk management, attitudes towards tax planning, level of acceptable risk to UK tax and its approach to dealings with HMRC. The strategy must remain available online and renewed each year.

In advance of the year end, the strategy should be published on the internet so it is freely available to the public (if required to publish for the first time). Where an existing strategy is already in place it should be updated and published on the company’s website.

Penalties for failing to publish a compliant strategy are applicable from the first day after the date by which the strategy should have been published and you may be charged:

  • a £7,500 penalty for not publishing a strategy;
  • a second £7,500 penalty if the strategy has not been published 6 months after it should have been; and
  • another £7,500 penalty for each following month until the strategy is published.

Please email the author, Kate McLaren, or member of our corporation tax team through our contact form for assistance on any of the above issues.

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