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 undertook a review of these processes and the relevant legislation. During this review, it was 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 has published new guidance at INTM413232, INTM413234, and INTM413236. to address the appropraite treaty relief claims which can be made following a failure to deduct.

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.

Resolving paused cases where a claim is not made or is no longer in time

Whilst the process at INTM413232 outlines how treaty relief will be applied to new disclosures of failures to deduct, HMRC is still considering how to deal with disclosures made before 2 November 2026 which are within the pause on processing.

Affected taxpayers do not need to contact HMRC at this stage. Further guidance will be published once the approach has been finalised. As previously decided, the approach to time limits expiring during the pause will be as follows:

• for concession applications made on or before 5 April 2025, to treat 2020-21 and 2021-22 in the same way as later years of assessment

• for concession applications made between 6 April 2025 and 5 April 2026 inclusive, to treat 2021-22 in the same way as later years of assessment

Making claims in respect of paused cases

Notwithstanding the above, payers with existing disclosures of failures to deduct may make claims for prior periods, subject to time limits for making that claim.

Where a payer chooses to make such a claim relating to a disclosure within the compliance pause, HMRC will consider the claim in line with this guidance and the settlement of a claim in these circumstances will also resolve the existing disclosure.

When such a claim is made, late payment interest (LPI) will be calculated from the original due date for payment of the income tax up to the earlier of:

• The date the income tax is paid to HMRC, and

• The date on which a valid claim is submitted, at which point the liability is provisionally considered to be discharged.

To help HMRC identify and process a claim relating to a paused case, the payer should also provide:

• The date of the original disclosure; and

• The reference used in previous correspondence with HMRC