BIM38230 - Wholly & exclusively: companies: group service company

Accept a reasonable recharge regime

Where a group service company incurs management expenses such as a central payroll, you may accept their being recharged to group members on a reasonable basis such as by reference to the number of employees in each company. In effect each company will then bear the proportion of expenses which relates to its own trade. You should normally only investigate such arrangements where one company incurs the expenditure for the purposes of another that is outside the scope of UK tax.

There are currently two distinct transfer-pricing codes in the Taxes Acts, plus additional provisions relating to finance. These are:

1. ICTA88/S770 - S773 (for accounting periods ending on or before 30 June 1999 and years of assessment up to and including 1998-99); and
2. ICTA88/SCH28AA, and ICTA88/S106 - S111 and FA98/SCH16 (for accounting periods ending on or after 1 July 1999 and years of assessment 1999-2000); the new code, amongst other things, has been adapted to the needs of self-assessment.

See INTM430000 onwards and INTM460000 onwards for detailed guidance on transfer pricing.

Similar considerations apply to partnerships that have dealings with ‘service’ companies owned by the partners.