MTT62330 - Charging mechanisms: Undertaxed Profits Rule: Allocation of untaxed amounts: Allocation of UK proportion between UK entities
Source: gov.uk (2025-08-05)


Once the UK proportion of the total untaxed amount has been determined, that proportion must then be allocated between the UK entities of the group. The method for allocating the UK proportion between UK entities is similar to the method for allocating the total untaxed amount between territories.

For each qualifying member of the group located in the UK, the group should determine the proportion of UK employees and UK tangible fixed assets that the member holds, and use the average of these to allocate the UK proportion to that member.

This is set out in section 229E Finance (No.2) Act 2023.

MTT62340 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62340) and MTT62350 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62350) explain how to determine the number of employees and value of tangible fixed assets.

Calculation to allocate UK proportion between qualifying members

To determine the untaxed amount that is allocated to each UK qualifying member, there is an 8-step calculation to follow. The 8 steps are set out in s229E Finance (No.2) Act 2023.

The first stage of this calculation is to determine the number of employees the member has as a proportion of the total number of employees of all qualifying members located in the UK (in Steps 1-3).

The second stage is to determine the value of tangible fixed assets the qualifying member has compared to the total value of tangible fixed assets of all qualifying members located in the UK (in Steps 4-6).

The third stage is to average these fractions to give the employee headcount and the tangible fixed assets an equal weighting for allocating the UK proportion (in steps 7-8).

This average is then multiplied by the UK proportion to determine the amount to be allocated to the member.

If none of the qualifying members located in the UK have any employees in the period, only the proportion of the value of fixed tangible assets will be used to determine the UK proportion, and vice versa.

Example 1

A multinational group has an untaxed amount of 1000 relating to a non-UK entity. The UK proportion of the total untaxed amount is 500.

The multinational group has 4 UK entities. The UK proportion of the total untaxed amount is allocated between the 4 UK entities as follows:
- UK Co 1 is an investment company. As an investment entity is not a qualifying member it cannot be allocated any untaxed amount.
- UK Co 2 has 40 employees and tangible fixed assets of 100.
- UK Co 3 has 60 employees and tangible fixed assets of 400.
- UK Co 4 has 0 employees and tangible fixed assets of 0
Therefore, the total number of employees of UK qualifying members is 40 + 60 = 100.

Likewise, the total value of tangible fixed assets of UK qualifying members is 100 + 400 = 500.

Allocation to UK Co 2:
- UK Co 2’s proportion of UK employee headcount is 0.4 (40 divided by 100).
- UK Co 2’s proportion of UK tangible fixed assets is 0.2 (100 divided by 500).
- therefore, the fraction of the untaxed amount that should be allocated to the UK Co 2 is 0.3 or 30% ((0.4 + 0.2) divided by 2).
- consequently, UK Co 2 is allocated 150 of the UK proportion of the total untaxed amount (0.3 multiplied by 500).
Allocation to UK Co 3:
- UK Co 3’s proportion of UK employee headcount is 0.6 (60 divided by 100).
- UK Co 3’s proportion of UK tangible fixed assets is 0.8 (400 divided by 500).
- therefore, the fraction of the untaxed amount that should be allocated to the UK Co 2 is 0.7 or 70% ((0.6 + 0.8) divided by 2).
- consequently, UK Co 3 is allocated 350 of the UK proportion of the total untaxed amount (0.7 multiplied by 500).
Allocation to Co 4:
- UK Co 4’s proportion of the headcount is 0 divided by 100 and the proportion of the tangible fixed assets are 0 divided by 500 and therefore the fraction of the untaxed amount should be zero.
In summary, UK Co 2 has been allocated 150 and UK Co 3 has been allocated 350. Therefore, the full 500 of the UK proportion of the total untaxed amount has been allocated to qualifying group members.

Example 2

A multinational group has an untaxed amount of 1000 relating to a non-UK entity. The UK proportion of the total untaxed amount is 500.

The multinational group has 3 UK entities. The UK proportion of the total untaxed amount is allocated between the 3 UK entities as follows:
- UK Co 1 has 40 employees and tangible fixed assets of 0.
- UK Co 2 has 60 employees and tangible fixed assets of 0.
- UK Co 3 has 0 employees and tangible fixed assets of 0
The total value of tangible fixed assets of the qualifying members of the group located in the UK is nil, but the total number of employees in the relevant period of qualifying members of the group located in the UK is not nil, therefore the nil asset value condition is met.

Therefore, the allocation of the untaxed amount is determined solely by using the employee headcount of the UK qualifying members.

The total number of employees of UK qualifying members is 40 + 60 = 100.

Allocation to UK Co 1:
- UK Co 1’s proportion of UK employee headcount is 0.4 (40 divided by 100).
- therefore, UK Co 1 is allocated 200 of the UK proportion of the total untaxed amount (0.4 multiplied by 500).
Allocation to UK Co 2:
- UK Co 2’s proportion of UK employee headcount is 0.6 (60 divided by 100).
- therefore, UK Co 2 is allocated 300 of the UK proportion of the total untaxed amount (0.6 multiplied by 500).
Allocation to UK Co 3:

As UK Co 3 has no employees or tangible fixed assets, it is not allocated any of the untaxed amount.

In summary, UK Co 1 has been allocated 200 and UK Co 2 has been allocated 300. Therefore, the full 500 of the UK proportion of the total untaxed amount has been allocated to qualifying group members. If the nil asset value condition had not been applied, only 50% of the total untaxed amount would have been allocated between the UK companies, due to the main allocation method requiring employees and tangible fixed assets to be located in the UK to operate properly.

Election to make one member of a group liable for untaxed amounts

A group may make an election under section 229F of the Act for one member of the group within the UK to be liable for any untaxed amounts which would otherwise be allocated between qualifying members of the group located in the UK.

Where the election is made, there is no need to allocate amounts between the qualifying members.

A member of the group may only be specified in the election if:
- it is located in the UK, and
- it has consented to the election.
This election is an annual election and is made in the self-assessment return rather than the information return. See MTT52200 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt52200) for general guidance on making an election.