HMRC's latest guidance for international businesses

HMRC has recently released new guidance for international businesses with a UK entity or taxable presence. 

In this article, we focus on some key topics, including:

• Transfer pricing compliance and risk management, based on HMRC’s Guidelines for Compliance 7 (GfC7).
• Guidance on registering for UK corporation tax for certain non-UK businesses.

None of this guidance replaces or changes existing UK tax legislation, but it does provide useful insight into HMRC’s expectations in key areas.

Transfer pricing compliance - what do you need to know?

HMRC’s recently published Help with common risks in transfer pricing approaches - GfC7 is relevant to all businesses subject to the UK’s transfer pricing rules. It addresses:

• Common transfer pricing compliance risks and how they might be identified.
• HMRC’s view of the best-practice principles and processes in relation to dealing with those risks.

Under the UK’s corporation tax self-assessment (CTSA) regime, UK taxpayers are responsible for submitting correct and complete corporation tax returns that self-assess their tax liability. This includes making any adjustments required under the transfer pricing rules for related party transactions which were not undertaken on an arm’s length basis. Through its release of GfC7, HMRC aims to:

• Explain its views regarding best practice for transfer pricing compliance.
• Reduce uncertainty for in-scope businesses.
• Help them to avoid non-compliance.

GfC7 has a number of parts: 

• Part 1 addresses the management of transfer pricing compliance risk and is primarily directed to in-house senior finance, risk and tax roles.
• Parts 2 and 3 address common transfer pricing compliance risk areas and indicators of transfer pricing policy design risk. They are aimed at transfer pricing specialists (both in-house and external advisers).
• Annex A considers supporting records and information and provides examples of the types of contemporaneous evidence to identify and retain.

The focus throughout is on the best practice, timing and scope of the critical steps to achieve and evidence a compliant position. Those businesses whose processes and procedures reflect HMRC’s expectations, taking account of their inherent transfer pricing risks and complexities, should be best placed to demonstrate that they have met their CTSA obligations, and to manage the risk of adjustments and potential for resulting penalties in the event of a subsequent HMRC transfer pricing enquiry.

Businesses should also consider the implications of this new guidance on their wider statutory obligations and tax governance policies and procedures.

Registering for UK corporation tax – what do you need to know?

HMRC has also released additional new guidance to help non-UK businesses to register for UK corporation tax. This covers:

• Non-UK incorporated companies becoming UK resident without being required to register with Companies House.
• Non-UK resident companies trading in the UK through a dependent agent permanent establishment (DAPE).

In each case, HMRC’s guidance explains:

• Which entities should register.
• When to register.
• The information required to register.
• How to register.
• What to expect after registering.

It is important to remember that registration is required within three months of the date that a company first becomes liable to UK corporation tax, for example by becoming UK resident or acquiring a UK DAPE.

Individual fact patterns are often complex and it can therefore be challenging to determine whether a company has become UK resident or has entered into arrangements giving rise to a UK DAPE and, if so, from what date. For these reasons, taking timely professional advice is often important to correctly identify applicable registration requirements and complete them by the required date.

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