In October 2021, over 135 countries, including the UK, agreed to implement a global minimum corporate tax rate of 15% as part of the “Pillar 2” initiative.
To align with this agreement, the UK government has introduced two new taxes: the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT), applicable to accounting periods starting on or after 31 December 2023.
The MTT is a new tax on UK parent members within a multinational enterprise group.
A tax will be charged where a UK parent member has an interest in entities located in a non-UK jurisdiction, and the group’s profits arising in that jurisdiction are taxed at below the minimum effective tax rate (ETR) of 15%.
The charge is a top-up tax; the amount brought into charge is that required to achieve a 15% minimum rate. No additional tax will arise in respect of jurisdictions where the group’s profits are taxed at 15% or more.
The DTT is a new tax on UK members within a domestic or multinational enterprise group. A top-up tax will be charged when the group’s profits arising in the UK are taxed at below the minimum rate of 15%.
It is important to recognise that the ETR is calculated based on the Pillar 2 rules and is not necessarily the same as the nominal tax rate in the country concerned.
Registration and filing with HMRC
A new IT system is being developed to administer the new taxes and companies are now able to register for the taxes with HMRC. In many cases, HMRC are aware of the companies within the scope of the new rules and have already sent nudge letters.
Please do reach out to us if you have received such a letter and require guidance on what to do next.
Your group must register for Pillar 2 top-up taxes, if you have:
- at least one entity located in the UK, and
- consolidated group annual revenues of €750 million or more, in at least 2 of the previous 4 accounting periods.
References to ‘groups’ also include single entities, so you could be subject to these rules even if you have a single UK entity but breach the relevant revenue test above.
You must register with HMRC if your group meets the above criteria, even if you do not have to pay any top-up tax.
You must register no later than 6 months after the end of the group’s first accounting period that started on or after 31 December 2023. So, if your group has a 31 December 2024 year end, registration must take place by 30 June 2025.
Domestic Top-up Tax and Multinational Top-up Tax
As mentioned above, there are two Pillar 2 top-up taxes in the UK:
- Domestic Top-up Tax
- Multinational Top-up Tax
If your group only has entities located in the UK, you must register to report for Domestic Top-up Tax.
If your group has entities located both inside and outside the UK, you must register to report for both Pillar 2 top-up taxes.
Pillar 2 top-up taxes operate at a group level. The filing member must register on behalf of all group members.
Once your group has registered to report Pillar 2 top-up taxes, you must submit your first returns no later than:
- 30 June 2026, if the first accounting period you reported for Pillar 2 top-up taxes ended on or before 31 December 2024
- 18 months after the last day of the group’s accounting period, if the first accounting period you reported for Pillar 2 top-up taxes ended after 31 December 2024
How we can help
Whilst the registration and filing deadlines may seem a while away, it is important to understand these rules, especially as they can be incredibly complex, and how they may impact your group.
Where you have similar MTT or DTT requirements in other jurisdictions, it will be vital to manage all the various deadlines.
UHY have offices in more than 330 locations across 96 countries and we are ideally placed to help you with your global MTT and DTT requirements. Please contact Nikhil Oza on n.oza@uhy-uk.com to learn more.
