Desktop Banner

Mobile Banner

UK hybrid and other mismatches rules – new information required in corporation tax return

HMRC has issued an updated corporation tax return form CT600, effective from 6 April 2022, for all accounting periods beginning on or after 1 April 2015.

Amongst various changes to the form, this update introduces a series of specific new disclosure requirements in the supplementary form CT600B regarding the application of the UK hybrid and other mismatches rules where they are relevant.

The rules in brief

As a brief reminder, the hybrid and other mismatches rules are widely drawn, but in practice they are commonly in point for:

The new disclosures

The update to the supplementary form CT600B adds ten new disclosure requirements, for which companies must apply the hybrid and other mismatches rules, where appropriate, to establish relevant details. The first six disclosures require the taxpayer to confirm a series of specific statements, if true. For example, a cross must be put in the relevant checkbox on the CT600B if:

The final four disclosures require details of relevant amounts to be provided where the rules are engaged.

It is important to recognise that form CT600B is submitted with a company tax return on a by exception basis, so companies are only required to complete the form if they have relevant information to disclose (including in relation to the controlled foreign companies and exempt foreign permanent establishment regimes to which the form also applies). Clearly, however, companies have to understand whether these disclosures are in point in the first place.

Some of these changes to form CT600B were expected, as they enable companies to claim surplus dual inclusion income from elsewhere within a group of companies, in accordance with new provisions introduced by Finance Act 2021, to set against expenditure that is otherwise non-deductible under the hybrid and other mismatches rules. However, some of the new disclosure requirements go beyond what may have been anticipated and will likely require taxpayers to undertake additional work, even if they have taken advice to satisfy themselves that they are not subject to a hybrid mismatch counteraction in a period and have robust documentation to support the position taken.

Why has HMRC made these changes?

HMRC has not made any specific policy statement regarding the new disclosures, so it is likely it views them as largely being a confirmation of taxpayer self-assessments, but with additional information to enable it to more easily identify the risk of errors.

In any event, it is not uncommon for taxpayers to be within the scope of the hybrid and other mismatches rules but for no counteraction to arise. However, the new reporting requirements are structured such that taxpayers that conclude they are within the scope of the rules are required to notify this on form CT600B and therefore the reality may be that they find themselves subject to HMRC compliance checks, which may, in some cases, extend to ‘discoveries’ in respect of earlier periods.

What should taxpayers be doing?

There is little doubt that the new disclosures in form CT600B will provide HMRC with an invaluable new source of information that is likely to lead to more and better targeted HMRC compliance reviews.

Companies should therefore ensure they review the new requirements at an early opportunity to understand whether their current documentation allows them to provide the necessary disclosures on the updated form, or whether they will need to carry out additional analysis, bearing in mind that obtaining the necessary details could be time-consuming.

Undoubtedly, the new disclosure obligations add one more layer of cost and risk to what seems to be an ever-increasing compliance burden for many companies.

For more information, please get in touch with Suze McDonald or your usual RSM contact.

authors:suze-mcdonald