HMRC has begun writing to UK holding companies with overseas subsidiaries, asking them to review any management expenses claimed for corporation tax relief. The letters are part of a wider awareness campaign for large businesses and point to frequent mistakes in this area.

Management expenses cover costs a holding company incurs in managing or overseeing its group, for example board, legal, finance, or strategic support. HMRC is concerned that some groups may be claiming deductions for costs that mainly benefit another company in the group, such as an overseas subsidiary or other connected party. The rules allow a holding company to deduct these costs only where they are incurred as part of a trade of providing services to that connected party. In that situation, HMRC expects a service fee to be charged in line with transfer pricing rules and the arm’s length principle.

The letters identify the accounting periods where claims were made and direct recipients to HMRC guidance. Companies are asked to check the relevant returns and correct any inaccuracies. If a return is still in time to amend, HMRC wants the company to update it and notify them. Where the amendment window has closed, the business should contact HMRC to discuss next steps.

HMRC says that voluntary corrections made now may be treated as unprompted when considering penalties, which can reduce any charge. It also recommends sharing the letter with the group’s UK senior accounting officer and advisers.

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