11 April 2025
Corporate Interest Restriction (CIR) and reporting company nominations – HMRC update
The corporate interest restriction (CIR) rules include an administrative requirement for an in-scope group to nominate a ‘reporting company’ before it can file an interest restriction return (IRR) for a period. For some groups it will be beneficial to file an IRR, for example, because it allows them to make certain CIR elections. If the usual 12 month deadline for nominating a reporting company has passed, HMRC can appoint a ‘reporting company’ on behalf of a group, but manual guidance released by HMRC in September 2024 set out that they would only be willing to do this in limited exceptional circumstances.
A new update from HMRC – due to be included in an upcoming edition of HMRC’s Agent Update publication and reproduced by the Chartered Institute of Taxation here – sets out a partial relaxation of this approach to “draw a line in the sand and alleviate the issue, as far as we can, for periods ending on or before 31 March 2024.” For periods ending on or after 31 March 2021 and on or before 31 March 2024, HMRC will no longer invalidate filed IRR returns due to the lack of a valid reporting company nomination, and will contact groups if there is already an open dialogue or dispute in relation to this issue. The relaxation does not apply for IRR returns for periods ending after 31 March 2024 and HMRC continue to stress that groups should ensure valid nominations are in place before they submit a return.
HMRC update guidance on LLP Salaried Members targeted anti-avoidance rule
Earlier this week, HMRC updated several pages in their Partnership Manual covering aspects of the LLP ‘salaried member’ rules in sections 863B-G Income Tax (Trading and Other Income) Act 2005. These rules, enacted in 2014, can lead to certain individual members of an LLP being treated for income tax and NIC purposes as employees receiving amounts of ‘disguised salaries’, rather than as self-employed partners receiving profit shares. Section 863G sets out a targeted anti-avoidance rule (TAAR) to disregard the effects of arrangements “the main purpose, or one of the main purposes, of which is to secure” that one or more of the rules’ three statutory conditions A, B and C are not met.
The guidance pages were previously updated in February 2024, and suggested HMRC held a view that the section 863G TAAR had a wider scope than had previously been understood, for example potentially applying where decisions on the amount of capital contributed by an individual member to LLP factored in the test in Condition C on whether a member’s capital is less than 25% of their ‘disguised salary’. HMRC announced earlier this year that they would be amending their February 2024 changes in response to requests for clarification. In particular, Example 2 in PM259200 (‘Becoming a member’) has now been changed and expanded. It clarifies that, in HMRC’s view, arrangements to increase capital that “result in the individual making a genuine contribution to the LLP which is intended to be enduring and giving rise to real risk” should not trigger the TAAR. The expanded guidance goes on to set out HMRC’s views on what it means for a contribution to be genuine and involve real risk to the member.
Examples of good practice for umbrella companies
On 8 April 2025, HMRC published a new guidance page titled Examples of good practice for umbrella companies in the temporary labour market. The guidance page describes best practices for the responsible operation of umbrella companies, addressing concerns about conduct in the sector. The guidance includes practical examples for demonstrating compliance with existing taxation, company and employment laws. The page also highlights the government’s Autumn Budget 2024 announcement to make agencies responsible for accounting for PAYE from April 2026 when providing workers employed through umbrella companies.
SC Arcomet Towercranes: VAT and transfer pricing adjustments – Advocate General Opinion
SC Arcomet Towercranes SRL (Arcomet Romania) acquired cranes for sale or lease to customers in Romania. Its parent company was Arcomet Service NV Belgium (Arcomet Belgium), which undertook most of the commercial responsibilities for its subsidiaries, including Arcomet Romania. A 2010 transfer pricing study set an operating margin for Arcomet Romania of between -0.71% and 2.74%, in accordance with the Transactional Net Margin Method. From 2011 to 2013, Arcomet Romania’s profits exceeded this amount, and Arcomet Belgium accordingly issued invoices to Arcomet Romania. Arcomet Romania applied the reverse charge to the first two invoices, but then, for the third invoice, considered that the transaction was outside the scope of VAT.
Following a reference to the CJEU, the Advocate General has concluded that any assessment as to whether a transfer price adjustment is subject to VAT must be carried out on a case-by-case basis. It is necessary to consider whether, for VAT purposes, services have been supplied for consideration. In this case, Arcomet Belgium was supplying management services for remuneration payable by Arcomet Romania. Although the amount of remuneration was not determined under the contract between the two parties, it was clearly determinable. In the Advocate General’s view, the remuneration payable was accordingly consideration for a supply of services, and subject to VAT. The Advocate General also concluded that the tax authorities may ask the taxpayer for information in addition to invoices to establish input tax deductibility, provided the request is proportionate and the information requested can establish the right to deduction. The Court will now consider whether to follow the Advocate General’s recommendation and will issue its judgment in due course. (Contact: Mark Simm)
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax webcast is on Tuesday 15 April 2025 at 12.00 BST/13.00 CEST. In Global tax governance and control, hosted by Mark Kennedy, our presenters will discuss the evolving regulatory landscape in relation to businesses’ control over their tax risks. Focussing on the new Italian ‘Tax Control Framework’ (TCF), and longstanding equivalents in Germany and the UK, our speakers will discuss how to design an effective, scalable tax governance and control framework, and how best to implement it through people, processes and technology.