More disclosures required on company tax returns, and this time they’re complex!

24 May 2022

Even the most diligent taxpayers and advisers may have missed the recent update to HMRC’s guidance on how to complete a company tax return. The Company Tax Return Guide was updated last month and now notes that additional disclosures are required, and that the tax return has been updated, following recent changes to the rules regarding hybrid mismatches. However, HMRC hasn’t made much of a fanfare about the update, which is alarming considering that some fanfare is arguably warranted. 

The rules in question seek to deny a tax advantage obtained through the use of hybrid entities and instruments. Hybrid in this context can be thought of as something with duality, i.e. viewed one way by one party and another way by another. A hybrid entity may be viewed as separate legal entities from their owners in one country and not in another, i.e. company versus partnership. A hybrid instrument may be viewed as debt in one country, and equity in another.

For HMRC to note that the changes were introduced following recent amendments to the tax rules seems disingenuous at best. Previously, companies in the UK were required to self-assess whether any of these complex provisions impacted them, and if they concluded they did not, their reporting obligations in this regard ended there. This was true even if they were “hybrid entities”; this amendment is therefore not a result of recent changes. This, along with other disclosures that are required, appear to be designed to allow HMRC to easily identify those at risk of falling foul of the legislation. We can therefore expect to see increased activity and requests for supporting analysis as a result.

Whilst the obligation to consider these matters in detail is not new, and indeed this may be why no fanfare was deemed necessary after all, the expectation that HMRC is more likely to request evidence that taxpayers have done so, may mean companies would be well-advised to consider putting in place more robust documentation to support their position.

Taxpayers and advisers be warned, workloads may be rising with the mercury this summer, so early communication with each other is advised.