This was a very vanilla Budget (a good thing) and banks have taken the biggest hit. There is also a nod towards chipping away at the gap between tax on work vs tax on assets. Passive rental income is being squeezed which is administratively cumbersome and won’t yield huge receipts but is not particularly objectionable or polarising.
There are no changes to the residence-based FIG regime, the Temporary Repatriation Facility or the long-term residence IHT rules. The notes refer to supposedly continually assessing whether the new regime strikes the right balance between international competitiveness, fairness and support for the public finances. Hmm.
It is good to see a commitment to (following consultation) alleviating the DTR mismatch for UK based US LLC investors.
There are no CGT horrors. I have to say I am not overly clear on the impact/message of the BADR restrictions. The qualifying conditions and compliance around claiming the relief almost make it not worth it! Founders’ Relief might be the answer but that is not law yet and again the qualifying conditions look onerous. The answer I suppose is do nothing until April 2027 (when Founders’ Relief is due to come in) and hope that the business you have built is both ‘high growth’ and ‘innovative’! The policy objective is to encourage founders and early investors to start and scale companies in the UK, and after disposal, to stay and reinvest. Let’s see how that takes shape.
The Government has published its summary of responses on modernising the taxation of distributions and repayments of capital. The aim is to prevent complex arrangements that extract profits at lower tax rates, while protecting genuine commercial transactions and families passing down their business. Capital reductions, buy-backs and pre-sale reorganisations may need attention.
The trust measures are just tidying up. Easing of trust exit charges (specifically s 80) where a trust changes tax residence as a result of trustee migration is welcome as are the measures around pension fund personal representatives being able to direct scheme administrators to pay the IHT. We will wait and see what emerges in relation to the debt-deduction restrictions to settled property.
The professional bodies have been busy working with HMRC in relation to the reform of the behavioural penalties, and a consultation is promised now on the offshore regime.
The Government has announced it will legislate in Finance Bill 2027 to require taxpayers to correct inaccuracies in returns and documents given to HMRC. I thought we were all already doing this!
DPT was introduced by Part 3 of the Finance Act 2015, with effect from 1 April 2015. Its purpose was to counter measures taken by multinational groups to ‘divert’ profits that would otherwise be subject to Corporation Tax (“CT”). DPT was designed to encourage companies to restate profits on an ‘arm’s length’ basis and pay additional CT (or face a DPT charge instead—at a higher punitive rate).
There are two ‘gateways’ to the DPT charge—(1) where entities / transactions lack economic substance and are used to exploit an ‘effective tax mismatch outcome’ (ss.80–81 FA 2015); and (2) arrangements to avoid a UK permanent establishment (s.86 FA 2015). In March 2026, HMRC reported that DPT had helped HMRC to settle over 250 investigations for additional CT between April 2015 and March 2025 and that more than £10.5 billion had been secured since DPT's introduction.
Repeal and replacement of the DPT regime
S.46 of and Schedule 5 to the Finance Act 2026 repealed DPT and replaced it with the Unassessed Transfer Pricing Profits (“UTPP”) rules (inserted as Part 4A of TIOPA 2010) for accounting periods beginning on or after 1 January 2026. Under these new rules, HMRC may assess unassessed transfer pricing profits to CT at a punitive rate where certain conditions are met.
HMRC’s policy reasons for the change included (1) clarifying the relationship between the taxation of diverted profits and the transfer pricing regime and (2) to enable businesses to benefit from the UK’s international tax treaties including access to the Mutual Agreement Procedure (“MAP”) to relieve double taxation (HMRC considered DPT stood outside of the UK’s double tax treaties).
Continuing relevance of the DPT regime
Notably, the old DPT regime remains applicable for accounting periods that began before 1 January 2026 (and for open enquiries, notices and reviews relating to those periods). The UTPP rules govern periods beginning on or after that date. Companies must notify HMRC within 3 months of the end of the relevant accounting period (s.92 FA 2015) if they have arrangements which are potentially within the scope of the DPT regime (subject to certain statutory exceptions). Failure to notify may attract a tax-geared penalty (Schedule 41 FA 2008).
Where HMRC believe DPT is due, a preliminary notice is issued (HMRC’s time limit for this varies depending on whether it is a ss.80-81 case or a s.86 case and whether the company has failed to notify). Subject to the company’s response, HMRC may then issue a charging notice requiring payment within 30 days. The regime has been described as a ‘pay now, argue later’ regime. Following the charging notice and expiry of the payment window, HMRC have a 15-month review period during which they are meant to work with the company to resolve the matter (the company may amend its CT return before the final 30 days of the period, to bring profits into CT and reduce the DPT). HMRC may decide to issue a notice to reduce or increase the charge. After conclusion of the review, the taxpayer may appeal against the DPT charging notice within 30 days of the end of the review period.
Relationship with the transfer pricing regime
DPT operates in tandem with the arm’s length principle (following Part 4 TIOPA 2010). The UK's transfer pricing rules price transactions between connected parties for tax purposes as per this principle. The DPT and transfer pricing regimes work together—where an enquiry has been settled on a transfer pricing basis and additional CT has been paid, DPT may be reduced and any overpayment repaid (HMRC investigations into purported profit diversion are often resolved by companies agreeing to change their transfer pricing and pay additional CT).
In summary, although the UTPP rules now apply for accounting periods beginning on or after 1 January 2026, DPT remains relevant to taxpayers for accounting periods commencing before that date and related disputes. It is therefore important for companies in multinational groups to remain aware of the DPT regime because it remains highly relevant and a significant HMRC enforcement ‘stick’.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
The recent case of Lifeplus Europe Ltd v HMRC [2026] UKFTT 00797 (TC) is relevant to taxpayers facing Schedule 36 information notices in the context of a Transfer Pricing Dispute. The case shows HMRC’s assertiveness in this area and provides an example of a taxpayer successfully resisting HMRC’s demands. It is a reminder of the limitations of HMRC's Schedule 36 powers:
• HMRC were unable to show that the parent company accounts requested were “reasonably required”;
• It was also found that the documents were not within the taxpayer's “possession or power” to obtain.
Our previous insight article provides an introduction to Schedule 36 in the Transfer Pricing Disputes context and can be found here: Transfer Pricing Disputes & Investigations: HMRC’s Schedule 36 powers and associated penalties | JHAB LLP. As explained in that article, Schedule 36, among other things, allows HMRC to compel production of information or documents that are “reasonably required” to check a taxpayer's tax position. Schedule 36 also includes a penalty regime and specific Transfer Pricing amendments were introduced in 2023.
Background
Lifeplus Europe Limited (“the Appellant”) is a UK subsidiary of a US parent. HMRC opened an enquiry into the Appellant’s tax position, having identified a perceived Transfer Pricing risk for certain Accounting Periods (there had been significant growth in the Appellant’s turnover, yet the net profit margin in its company accounts had reduced significantly). This reduction in profits had coincided with the adoption of a particular Transfer Pricing policy. HMRC issued a Schedule 36 Information Notice to the Appellant, requesting, in respect of several Accounting Periods, all of the US parent company’s group consolidated financial statements (“Item 1”); and all of that parent company’s entity level financial statements (“Item 2”).
Following an HMRC review, the Appellant appealed to the Tribunal. The issues were: (1) Whether the documents requested were “reasonably required” by HMRC to check the Appellant’s tax; and (2) If so, whether the documents were in the “possession or power” of the Appellant. These issues required the Tribunal to consider relevant Transfer Pricing principles applied to cross-border transactions.
The parties’ arguments
HMRC argued that in respect of ‘Item 1’, the consolidated financial statements would: (1) evidence the group’s overall turnover, costs and profit; (2) enable HMRC to assess the proportion of the Appellant’s contribution to group profits/losses; and (3) substantiate the accuracy of the evidence that the Appellant had provided to HMRC during the enquiry.
In respect of ‘Item 2’, HMRC argued that the entity level financial statements would: (1) evidence the figures put forward as part of the Appellant’s proposed adjustment to HMRC’s CUP analysis; (2) assist with verifying whether the parent company, as an entity, was making a loss in 2013; and (3) enable HMRC to compare the Appellant’s turnover and costs/profits with those of the parent company, to support the correctness of the CUP analysis.
In response, the Appellant argued that: (1) The consolidated group accounts and the parent company accounts were not ‘reasonably required’ for the purpose of checking the Appellant’s tax position, because there was no ‘rational connection’ between those accounts and the issue in the enquiry; and (2) in any event, those accounts were not in the Appellant’s ‘possession’ or ‘power’ because the Appellant did not have any enforceable legal right, ‘general consent’, or ‘de facto’ right to access them.
The Tribunal’s Decision
The Tribunal decided in favour of the Appellant. The Tribunal considered that the approach adopted by HMRC during the enquiry, together with the relevant Transfer Pricing methodologies and processes, is the lens through which any ‘rational connection’ between the tax dispute and the documents requested in the Information Notice is to be viewed.
Having considered the information, the Tribunal held that the documents requested in the Information Notice were not ‘reasonably required’. HMRC had, among other things, failed to give an objectively reasonable explanation for why they should be permitted to have the contents of the accounts. OECD Guidelines para 3.22 states that once a one-sided method is chosen with the domestic taxpayer as tested party (as in the instant case), the tax administration "generally has no reason to further ask for financial data of the foreign associated enterprise".
For completeness, regarding ‘possession or power’, the Tribunal was satisfied that the Appellant had made serious attempts to obtain the documents requested—upon receipt of the Information Notice, the Appellant’s representatives asked the parent company’s Chief Financial Officer to obtain the documents, but the parent company declined (stating that the owners of the privately-held company were entitled to their privacy and confidentiality under US law, and citing the sufficiency of the annual transfer pricing studies and the volume of information already provided). Some of the Appellant’s officers were also officers of the parent company, however the Tribunal decided, amongst other things, that the Appellant did not have either a right or power to access the documents without the parent company’s consent and that complying with HMRC’s requests would put the Directors in breach of their statutory duties. As part of its reasoning, the Tribunal considered disclosure case law from the High Court and Court of Appeal and the CPR 31.8 line of authorities, noting that ‘control’ and ‘power’ have the same meaning.
Implications and possible next steps
The end of the decision includes the standard right to apply for permission to appeal, however the Tribunal’s decision cannot in fact be appealed as it is considered ‘final’ (by virtue of Paragraph 32(5) of Schedule 36).
In terms of the wider matter, HMRC may now decide (having failed to obtain the documents sought), to simply issue closure notices amending the relevant tax returns based on the information they currently hold. The Appellant would then be able to appeal, and the burden would be on them to dislodge the amendments.
As the enquiries remain open, there are no time limits for HMRC to close the enquiries and amend the returns, however the Appellant may apply to the Tribunal for a direction that HMRC issue a closure notice unless there are reasonable grounds not to (Paragraph 33, Schedule 18 to Finance Act 1998). In light of HMRC’s delays and failures so far, the Tribunal may be sympathetic to such an application (enquiries have been open since 2016 across ten Accounting Periods and almost 30,000 emails have been provided to HMRC).
HMRC may also need to consider the UK/US treaty dimension, should they seek to impose a Transfer Pricing adjustment. There may also be double-taxation and mutual agreement procedure / corresponding adjustment considerations.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
This was a very vanilla Budget (a good thing) and banks have taken the biggest hit. There is also a nod towards chipping away at the gap between tax on work vs tax on assets. Passive rental income is being squeezed which is administratively cumbersome and won’t yield huge receipts but is not particularly objectionable or polarising.
There are no changes to the residence-based FIG regime, the Temporary Repatriation Facility or the long-term residence IHT rules. The notes refer to supposedly continually assessing whether the new regime strikes the right balance between international competitiveness, fairness and support for the public finances. Hmm.
It is good to see a commitment to (following consultation) alleviating the DTR mismatch for UK based US LLC investors.
There are no CGT horrors. I have to say I am not overly clear on the impact/message of the BADR restrictions. The qualifying conditions and compliance around claiming the relief almost make it not worth it! Founders’ Relief might be the answer but that is not law yet and again the qualifying conditions look onerous. The answer I suppose is do nothing until April 2027 (when Founders’ Relief is due to come in) and hope that the business you have built is both ‘high growth’ and ‘innovative’! The policy objective is to encourage founders and early investors to start and scale companies in the UK, and after disposal, to stay and reinvest. Let’s see how that takes shape.
The Government has published its summary of responses on modernising the taxation of distributions and repayments of capital. The aim is to prevent complex arrangements that extract profits at lower tax rates, while protecting genuine commercial transactions and families passing down their business. Capital reductions, buy-backs and pre-sale reorganisations may need attention.
The trust measures are just tidying up. Easing of trust exit charges (specifically s 80) where a trust changes tax residence as a result of trustee migration is welcome as are the measures around pension fund personal representatives being able to direct scheme administrators to pay the IHT. We will wait and see what emerges in relation to the debt-deduction restrictions to settled property.
The professional bodies have been busy working with HMRC in relation to the reform of the behavioural penalties, and a consultation is promised now on the offshore regime.
The Government has announced it will legislate in Finance Bill 2027 to require taxpayers to correct inaccuracies in returns and documents given to HMRC. I thought we were all already doing this!
DPT was introduced by Part 3 of the Finance Act 2015, with effect from 1 April 2015. Its purpose was to counter measures taken by multinational groups to ‘divert’ profits that would otherwise be subject to Corporation Tax (“CT”). DPT was designed to encourage companies to restate profits on an ‘arm’s length’ basis and pay additional CT (or face a DPT charge instead—at a higher punitive rate).
There are two ‘gateways’ to the DPT charge—(1) where entities / transactions lack economic substance and are used to exploit an ‘effective tax mismatch outcome’ (ss.80–81 FA 2015); and (2) arrangements to avoid a UK permanent establishment (s.86 FA 2015). In March 2026, HMRC reported that DPT had helped HMRC to settle over 250 investigations for additional CT between April 2015 and March 2025 and that more than £10.5 billion had been secured since DPT's introduction.
Repeal and replacement of the DPT regime
S.46 of and Schedule 5 to the Finance Act 2026 repealed DPT and replaced it with the Unassessed Transfer Pricing Profits (“UTPP”) rules (inserted as Part 4A of TIOPA 2010) for accounting periods beginning on or after 1 January 2026. Under these new rules, HMRC may assess unassessed transfer pricing profits to CT at a punitive rate where certain conditions are met.
HMRC’s policy reasons for the change included (1) clarifying the relationship between the taxation of diverted profits and the transfer pricing regime and (2) to enable businesses to benefit from the UK’s international tax treaties including access to the Mutual Agreement Procedure (“MAP”) to relieve double taxation (HMRC considered DPT stood outside of the UK’s double tax treaties).
Continuing relevance of the DPT regime
Notably, the old DPT regime remains applicable for accounting periods that began before 1 January 2026 (and for open enquiries, notices and reviews relating to those periods). The UTPP rules govern periods beginning on or after that date. Companies must notify HMRC within 3 months of the end of the relevant accounting period (s.92 FA 2015) if they have arrangements which are potentially within the scope of the DPT regime (subject to certain statutory exceptions). Failure to notify may attract a tax-geared penalty (Schedule 41 FA 2008).
Where HMRC believe DPT is due, a preliminary notice is issued (HMRC’s time limit for this varies depending on whether it is a ss.80-81 case or a s.86 case and whether the company has failed to notify). Subject to the company’s response, HMRC may then issue a charging notice requiring payment within 30 days. The regime has been described as a ‘pay now, argue later’ regime. Following the charging notice and expiry of the payment window, HMRC have a 15-month review period during which they are meant to work with the company to resolve the matter (the company may amend its CT return before the final 30 days of the period, to bring profits into CT and reduce the DPT). HMRC may decide to issue a notice to reduce or increase the charge. After conclusion of the review, the taxpayer may appeal against the DPT charging notice within 30 days of the end of the review period.
Relationship with the transfer pricing regime
DPT operates in tandem with the arm’s length principle (following Part 4 TIOPA 2010). The UK's transfer pricing rules price transactions between connected parties for tax purposes as per this principle. The DPT and transfer pricing regimes work together—where an enquiry has been settled on a transfer pricing basis and additional CT has been paid, DPT may be reduced and any overpayment repaid (HMRC investigations into purported profit diversion are often resolved by companies agreeing to change their transfer pricing and pay additional CT).
In summary, although the UTPP rules now apply for accounting periods beginning on or after 1 January 2026, DPT remains relevant to taxpayers for accounting periods commencing before that date and related disputes. It is therefore important for companies in multinational groups to remain aware of the DPT regime because it remains highly relevant and a significant HMRC enforcement ‘stick’.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
The recent case of Lifeplus Europe Ltd v HMRC [2026] UKFTT 00797 (TC) is relevant to taxpayers facing Schedule 36 information notices in the context of a Transfer Pricing Dispute. The case shows HMRC’s assertiveness in this area and provides an example of a taxpayer successfully resisting HMRC’s demands. It is a reminder of the limitations of HMRC's Schedule 36 powers:
• HMRC were unable to show that the parent company accounts requested were “reasonably required”;
• It was also found that the documents were not within the taxpayer's “possession or power” to obtain.
Our previous insight article provides an introduction to Schedule 36 in the Transfer Pricing Disputes context and can be found here: Transfer Pricing Disputes & Investigations: HMRC’s Schedule 36 powers and associated penalties | JHAB LLP. As explained in that article, Schedule 36, among other things, allows HMRC to compel production of information or documents that are “reasonably required” to check a taxpayer's tax position. Schedule 36 also includes a penalty regime and specific Transfer Pricing amendments were introduced in 2023.
Background
Lifeplus Europe Limited (“the Appellant”) is a UK subsidiary of a US parent. HMRC opened an enquiry into the Appellant’s tax position, having identified a perceived Transfer Pricing risk for certain Accounting Periods (there had been significant growth in the Appellant’s turnover, yet the net profit margin in its company accounts had reduced significantly). This reduction in profits had coincided with the adoption of a particular Transfer Pricing policy. HMRC issued a Schedule 36 Information Notice to the Appellant, requesting, in respect of several Accounting Periods, all of the US parent company’s group consolidated financial statements (“Item 1”); and all of that parent company’s entity level financial statements (“Item 2”).
Following an HMRC review, the Appellant appealed to the Tribunal. The issues were: (1) Whether the documents requested were “reasonably required” by HMRC to check the Appellant’s tax; and (2) If so, whether the documents were in the “possession or power” of the Appellant. These issues required the Tribunal to consider relevant Transfer Pricing principles applied to cross-border transactions.
The parties’ arguments
HMRC argued that in respect of ‘Item 1’, the consolidated financial statements would: (1) evidence the group’s overall turnover, costs and profit; (2) enable HMRC to assess the proportion of the Appellant’s contribution to group profits/losses; and (3) substantiate the accuracy of the evidence that the Appellant had provided to HMRC during the enquiry.
In respect of ‘Item 2’, HMRC argued that the entity level financial statements would: (1) evidence the figures put forward as part of the Appellant’s proposed adjustment to HMRC’s CUP analysis; (2) assist with verifying whether the parent company, as an entity, was making a loss in 2013; and (3) enable HMRC to compare the Appellant’s turnover and costs/profits with those of the parent company, to support the correctness of the CUP analysis.
In response, the Appellant argued that: (1) The consolidated group accounts and the parent company accounts were not ‘reasonably required’ for the purpose of checking the Appellant’s tax position, because there was no ‘rational connection’ between those accounts and the issue in the enquiry; and (2) in any event, those accounts were not in the Appellant’s ‘possession’ or ‘power’ because the Appellant did not have any enforceable legal right, ‘general consent’, or ‘de facto’ right to access them.
The Tribunal’s Decision
The Tribunal decided in favour of the Appellant. The Tribunal considered that the approach adopted by HMRC during the enquiry, together with the relevant Transfer Pricing methodologies and processes, is the lens through which any ‘rational connection’ between the tax dispute and the documents requested in the Information Notice is to be viewed.
Having considered the information, the Tribunal held that the documents requested in the Information Notice were not ‘reasonably required’. HMRC had, among other things, failed to give an objectively reasonable explanation for why they should be permitted to have the contents of the accounts. OECD Guidelines para 3.22 states that once a one-sided method is chosen with the domestic taxpayer as tested party (as in the instant case), the tax administration "generally has no reason to further ask for financial data of the foreign associated enterprise".
For completeness, regarding ‘possession or power’, the Tribunal was satisfied that the Appellant had made serious attempts to obtain the documents requested—upon receipt of the Information Notice, the Appellant’s representatives asked the parent company’s Chief Financial Officer to obtain the documents, but the parent company declined (stating that the owners of the privately-held company were entitled to their privacy and confidentiality under US law, and citing the sufficiency of the annual transfer pricing studies and the volume of information already provided). Some of the Appellant’s officers were also officers of the parent company, however the Tribunal decided, amongst other things, that the Appellant did not have either a right or power to access the documents without the parent company’s consent and that complying with HMRC’s requests would put the Directors in breach of their statutory duties. As part of its reasoning, the Tribunal considered disclosure case law from the High Court and Court of Appeal and the CPR 31.8 line of authorities, noting that ‘control’ and ‘power’ have the same meaning.
Implications and possible next steps
The end of the decision includes the standard right to apply for permission to appeal, however the Tribunal’s decision cannot in fact be appealed as it is considered ‘final’ (by virtue of Paragraph 32(5) of Schedule 36).
In terms of the wider matter, HMRC may now decide (having failed to obtain the documents sought), to simply issue closure notices amending the relevant tax returns based on the information they currently hold. The Appellant would then be able to appeal, and the burden would be on them to dislodge the amendments.
As the enquiries remain open, there are no time limits for HMRC to close the enquiries and amend the returns, however the Appellant may apply to the Tribunal for a direction that HMRC issue a closure notice unless there are reasonable grounds not to (Paragraph 33, Schedule 18 to Finance Act 1998). In light of HMRC’s delays and failures so far, the Tribunal may be sympathetic to such an application (enquiries have been open since 2016 across ten Accounting Periods and almost 30,000 emails have been provided to HMRC).
HMRC may also need to consider the UK/US treaty dimension, should they seek to impose a Transfer Pricing adjustment. There may also be double-taxation and mutual agreement procedure / corresponding adjustment considerations.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
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