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Each company within a group must file its own corporate tax return on an individual basis.
The only exception to this rule is the option of bundling for VAT purposes, explained below.
Even so, the UK tax system recognizes relationships between companies in the same group for the purposes of corporate tax, VAT, property transfer tax and documented legal acts, and stamp duty.
The corporate tax system in the United Kingdom includes several measures to optimize the tax burden within business groups, always under strict rules against avoidance.
One of the main advantages is group relief, which compensates for operating profits and losses between companies in the same fiscal group, generally defined by a minimum participation of 75%. This measure may apply between entities resident in the United Kingdom, and in certain cases, to non-resident entities subject to British tax. The conditions for permanent establishments are more restrictive, especially if the losses can be used in another jurisdiction.
As of April 1, 2017, unused losses can be carried over to subsequent years and, if certain requirements are met, applied to the group's future fiscal periods.
Intragroup transfers of assets (capital, loans, intangibles, derivatives) between UK companies are usually exempt from immediate taxation. However, if the transferee company leaves the group within the next six years, a fiscal adjustment may apply (Disaggregation Charge). For capital gains and losses, there is no automatic compensation between companies in the group, although it can be achieved through reorganization or formal election.
The regime includes measures that prevent the artificial transfer of benefits between group entities, applying transfer pricing rules, including between companies in the United Kingdom.
In addition, the net interest deduction is limited. Since April 2017, this has been restricted to the greater of 30% of the group's fiscal EBITDA in the United Kingdom or the group's debt ratio, and cannot exceed the net interest shown in the global consolidated financial statements. This system replaced the previous one Debt Capworldwide.
Companies that are part of a group can, subject to certain requirements, choose to register as a single VAT taxable person. This option allows internal operations between members of the group to not be subject to taxation, simplifying compliance and reducing administrative burden.
The group is registered in the name of a representative company, which assumes responsibility for filing periodic returns on behalf of all members. However, all entities in the group are jointly and severally liable for the resulting tax obligations.
Grouping for VAT purposes is subject to specific rules aimed at preventing tax avoidance, especially in relation to the inclusion of entities without economic activity or with an establishment in the United Kingdom.
Transfers of shares or real estate made within groups with at least 75% of common ownership are usually exempt from stamp duty or the Stamp Duty Land Tax (SDLT), respectively, provided that certain requirements are met.
In the case of the SDLT, the tax benefit can be revoked retroactively if the acquiring entity leaves the group within three years of the transaction, unless certain exceptions are met.
The United Kingdom applies transfer pricing rules based on OECD guidelines, which extend to most transactions between related parties, both domestic and cross-border, when they differ from what would have been agreed between independent parties and generate a tax advantage.
Related parties are considered to be those under common control, including not only shareholder relationships, but also management influences. These rules cover transfers of goods, services, intangibles and financial agreements, such as loans, being the main mechanism for controlling undercapitalization.
Unlike other countries, the United Kingdom does not offer “safe havens” when it comes to indebtedness, so interest deductibility is assessed on a case-by-case basis. Since April 2017, an additional rule has applied that limits the group's net interest deduction to 30% of UK tax EBITDA, with exceptions for highly leveraged groups.
Companies must self-evaluate their compliance with the principle of full competition and maintain adequate documentation. Since April 2023, large groups are required to keep specific documentation. The lack of documentation can lead to penalties, since negligence is presumed if errors are detected in the declaration.
There is an Advance Price Agreement regime that offers prospective certainty, including specific agreements on undercapitalization. HMRC also contemplates compensatory adjustments when both parties are subject to taxes in the United Kingdom, and provides relief mechanisms for international transactions under agreements to avoid double taxation.
The Government has proposed significant reforms to these regulations to simplify their application, harmonize them with international standards and improve transparency. Notable changes include:
These reforms are under public consultation until July 2025 and are expected to be incorporated into the fiscal legislation of 2025-2026.
In line with Action 13 of the OECD BEPS project, the United Kingdom requires multinational groups with annual consolidated revenues of more than 750 million euros (or equivalent in pounds) to submit country-by-country reports. This report includes key information by jurisdiction: income, benefits, taxes paid and accrued, number of employees, assets, and other relevant metrics.
When the ultimate parent company is in the United Kingdom or in certain cases when it only operates in the country, the report must be filed with HMRC together with the corresponding tax return. HMRC automatically shares this information with other jurisdictions that sign cBC exchange agreements.
Although some sectors have promoted the public publication of these data, their disclosure is currently still voluntary. The GRI 207 standard, issued by the Global Reporting Initiative, establishes a voluntary framework for this purpose.
Regulation SI 2023/752, issued in July 2023, has in most cases eliminated the requirement for annual country-by-country notification in the United Kingdom. However, there may be specific cases where such notification is still required.
Historically, British rules required maintaining sufficient records to declare taxes correctly, but without a prescribed format for transfer pricing documentation, although standard practice followed OECD guidelines.
Starting with fiscal years beginning on April 1, 2023 (for corporate income tax) and April 6, 2024 (for income tax), large companies (groups with consolidated revenues exceeding 750 million euros) will be legally required to maintain transfer price documentation in OECD format, including the Master File and the Local Archive, with the exception of certain exemptions.
The Finance Act (No. 2) of 2023 and the Transfer Price Records Regulations of 2023 regulate these requirements and the consequences of non-compliance, including:
Although entities that do not exceed the income threshold are not legally required to prepare the Master and Local File, HMRC recommends following this practice to demonstrate compliance with the principle of full competence. In addition, HMRC can request transfer pricing documents no more than 30 days after the request, without the need for such documents to be physically with the UK entity if they are held by another company in the group.
The government is considering introducing an Intercompany Controlled Transaction Reporting system for relevant cross-border transactions exceeding one million pounds, which will include detailed information to assess transfer pricing risks.
Additionally, the possible future implementation of a “Summarized Audit Record” is being evaluated, which would document the actions taken to prepare the Local Archive, although it is not expected to be implemented soon.
The responsibility for maintaining this documentation lies with the company's Senior Accounting Officer.
In November 2021, HMRC announced the development of the Compliance Guidelines as part of its tax administration review aimed at large companies. These guidelines are not legal technical documents, but rather good practice guides that reflect HMRC's expectations of practical law enforcement and administrative approaches to facilitate tax compliance.
One of these guides focuses on transfer pricing and was published on September 10, 2024. Its objective is to help companies understand what HMRC expects when it comes to planning, implementing, managing and documenting transfer pricing. They apply both to companies subject to the new legal requirements for transfer pricing documentation in the United Kingdom and to those that, although exempt, must ensure that their prices comply with the principle of full competition and keep adequate records.
The guide is divided into three parts depending on the profile of the recipients:
Part 1 — Compliance risk management for UK companies: aimed at those responsible for tax and accounting management and filing returns in the United Kingdom. It covers necessary governance, controls, checks and evidence.
Part 2 — Common compliance risks: aimed at transfer pricing specialists, both external advisors and internal teams, providing good practices for analysis, support and documentary evidence.
Part 3 — Risk indicators in the design of transfer pricing policies: also aimed at specialists, it addresses common risks in the development and implementation of transfer pricing policies, considering variability depending on the size, complexity and risk profile of the business.
HMRC emphasizes that the scope of the work and the evidence required will depend on the complexity and materiality of the business group's transactions.
The regime of Controlled Foreign Companies in the United Kingdom, a resident company can tax part of the profits of certain controlled non-resident companies, in which it has a stake. The main purpose is to tax benefits that have been artificially diverted outside the UK.
Main characteristics of the regime:
Taxation: The benefits of a non-resident SEC will be taxed in the United Kingdom under the usual rules and types of corporate tax, provided that: the benefits go through the so-called “gateway” of the SEC and the SEC does not meet the criteria for any applicable exemption.
Access routes: These are criteria designed to identify benefits that are artificially diverted. For example, benefits attributable to significant person roles in the United Kingdom. In such cases, these benefits are taxed in the United Kingdom unless any of the four exemption conditions are met, the main one being that obtaining a tax advantage is not the main objective or one of the main objectives. Exemptions:
Recent regulatory aspects: The European Commission (EC) investigated the pre-2019 exemption and concluded that some provisions constituted state aid. However, in September 2024, the Court of Justice of the European Union (CJEU) overturned this decision, confirming that the exemption does not constitute state aid.
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