INTM413205 | Transfer pricing: the main thin capitalisation legislation: HMRC review and temporary pause in processing disclosures

HMRC review and temporary pause in processing disclosures

The guidance at INTM413210-INTM413230 explains processes related to the requirement to deduct amounts representing income tax from payments of UK source yearly interest to overseas lenders. It also explains the some of the relevant processes when a Double Taxation Agreement modifies that requirement.

HMRC is currently undertaking a review of these processes and the relevant legislation. Whilst this review is being undertaken, it has proven necessary to pause the processing of disclosures of failures to comply with the requirement (including any associated repayment claims and applications for HMRC to assess only the late payment interest).

Following this review, HMRC will make any required changes to this section of the manual, including the concession to assess only the late payment interest.

Borrowers remain obligated to make disclosures of any non-compliance with the requirement to deduct from payments of yearly interest and should do so without delay.

Applications for an HMRC direction that deductions from prospective payments should be made at the treaty rate are not impacted by this review and are being processed and issued within usual parameters.

Impact of pause on time limits for claims

As noted above, the review being undertaken covers various aspects of the processes and legislation under which relevant disclosures are treated. Whilst HMRC are considering how such cases will be treated, we want to provide clarity to taxpayers as to how any relevant 4-year time limits will be applied at the conclusion of the review.

Where a disclosure has been made, and the customer has applied for the concessionary treatment under INTM413230:

• before 5 April 2025, HMRC will accept that 2020-21 and 2021-22 will also fall within the voluntary disclosure/concession application and will be treated in the same way as later years of assessment covered by that voluntary disclosure/concession application.

• between 6 April 2025 – 5 April 2026, HMRC will accept that 2021-22 will also fall within the voluntary disclosure/concession application and will be treated in the same way as later years of assessment covered by that voluntary disclosure/concession application.