Andrew Scott of Pinsent Masons, the law firm behind Out-Law.com, pointed out that these companies were the persist to benefit from transitional provisions giving them six months from the complete of the financial year to notify HMRC if they were potentially within the scope of the fresh tax. Once this deadline passes, the notification period will be reduced to three months, he said.

Scott, who was piece of the HMRC team which worked on the policy behind DPT priorto he joined Pinsent Masons, warned previously that companies would possess to “consider very carefully” how to engage with HMRC as piece of the notification process. Should HMRC consider the company liable for DPT, it would possess to pay any tax up front priorto appealing, he said.

“The policy behind the DPT is that there will be full engagement with HMRC from the begin,” he said. “Companies desire to be ready for that and desire to consider, in particular, how to deal with an assertive HMRC.”

“The fact that there is no proper of appeal until 12 months subsequent payment of any DPT will standfor that companies that are ultimately successful on appeal will suffer a significant cash flow disadvantage,” he said.

DPT applies from 1 April 2015 and is charged at a rate of 25% on ‘diverted profits’. It is a fresh tax, separate from corporation tax, which has its own specific rules for assessment and payment.

Companies do not self assess their liability for DPT. Instead, they must notify HMRC is they are potentially within the scope of the tax and do not satisfy any of the exemptions. Usually, this notification must be given within three months subsequent the complete of the company’s accounting period, but this has been extended to six months for accounting periods ending on or priorto 31 March 2016. This means that companies with a 31 March year complete possess until 30 September to notify.

Broadly, DPT applies in two circumstances. The first is where there is a corporate group with a UK subsidiary or permanent establishment (PE); and where there are arrangements between connected parties which “lack economic substance” in order to exploit tax mismatches. single example of this would be if profits are taken out of a UK subsidiary by way of a big tax deductible payment to an associated entity in a low-tax jurisdiction.

The second situation in which DPT can apply is where a non-UK resident trading company carries on 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 PE in the UK. Where this is the case, DPT will apply where either the main purpose of the arrangements locate in place is to avoid UK tax, or a tax mismatch results in the total tax grab from UK activities being significantly reduced.

Following notification, if HMRC considers that a company may be liable for DPT it will issue a ‘preliminary notice’ outlining the grounds on which it considers that DPT is payable and calculating the tax based on certain simplified assumptions. HMRC has only two years from the complete of the accounting period to issue a notice if the company makes a notification, or an extended four-year period if the company does not notify.

On receipt of a preliminary notice, the company will possess the opportunity to correct any obvious errors. HMRC will then issue a ‘charging notice’, which the company will possess 30 days to pay, if it unmoving believes DPT is due. HMRC has 12 months to review the charge to DPT and reduce or increase it if necessary once the charging notice has been issued. However, the company will only be capable to appeal the DPT charge once this review period has passed.