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Deadline – diverted profits tax notification

Companies with financial years ending before 31 March now have only until the end of this month to notify HMRC if they believe that the new diverted profits tax could apply to them.

The Diverted Profits Tax (DPT) applies from 1 April 2015 and is charged at a rate of 25% on ‘diverted profits’.  It is a new tax, separate from corporation tax, and has its own rules for assessment and payment.

It is important to note that companies do not self-assess their liability for DPT, rather  they must notify HMRC that they are potentially within the regime.  Normally, this notification must be given within three months after the end of the company’s accounting period, but this has been extended to six months for accounting periods ending on or before 31 March 2016.  Hence companies with a 31 March year end have until 30 September to notify.

Just as a reminder, broadly, DPT applies in two circumstances.  The first is where there is a corporate group with a UK subsidiary or permanent establishment and there are arrangements between the connected parties which “lack economic substance” in order to reduce tax.  The second is where a non-UK resident company carries on an activity in the UK in connection with supplies of goods, services or other property; and that activity is designed to ensure that the non-UK company does not create a permanent establishment in the UK.  The new regime  applies, in the case of the first test, only where the UK person and foreign company are not small or medium-sized enterprises (SMEs), in the case of the second test, only where the two parties are not SMEs on a group basis.



Date: 15th September, 2016
Author: Cathy Corns


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