MTT62340 - Charging mechanisms: Undertaxed Profits Rule: Allocation of untaxed amounts: Number of employees
Source: gov.uk (2025-08-05)


In order to perform the calculations set out in MTT62320 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62320) and MTT62330 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62330), a group is required to calculate the full-time equivalent employee numbers of each qualifying member.

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

Determination of the full-time equivalent employee number

The number of employees of a member is the full-time equivalent employee number for that period.

The full-time equivalent employee number consists of:
- the number of full-time employees who were employed full-time by the qualifying member throughout the entire period, and
- the number of employees who were employed part-time, or full-time for only part of the period, pro-rated as is just and reasonable.
The result of the above calculation is further adjusted where the member was not a member of the group for the whole period. In this circumstance, the group must make a further just and reasonable adjustment to the full-time equivalent employee number, in respect of the period for which it was not a member of the group.

Definition of employee

For the purposes of the above calculation, a person is an employee of a member of a group if:
- their employment costs are met by that member, as recorded in the appropriate financial statements of that member (see MTT62420 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62420)), and
- the employee either:
- is regarded as an employee under the law of the territory in which the member is located, or
- participates in the ordinary operating activities of the member (including on a part-time basis).
It is not necessary that the person’s activities are carried on in the territory of the member.

Where:
- the member is a permanent establishment, and
- the permanent establishment does not prepare separate financial statements,
The financial statements, for this purpose, will be the hypothetical financial statements of the permanent establishment.

Employees of flow-through entities

Where a member of a group is a flow-through entity, employees of the entity are to be treated as employees of members of the group:
- that are not flow-through entities, and
- are located in the territory in which the flow-through entity was created.
If there are no such members in that territory, the employees of the flow-through entity is ignored for the purposes of the calculation.

This treatment only applies for the purpose of determining the proportion of the untaxed amount to be allocated to the UK. It does not apply for the purpose of allocating amounts to qualifying members.

This treatment does not apply to employees of a permanent establishment of a flow-through entity.

Example 1

UK Co 1 has the following employees for an accounting period beginning on 1 January 2050 and ending on 31 December 2050:
- 100 full-time employees who were employed throughout the entire accounting period.
- 10 part-time employees who work 50% of the hours of a full-time equivalent employee who was employed throughout the entire accounting period.
- 12 full-time employees who were employed from 1 January 202X to 30 September 2050.
- 24 part-time employees who work 50% of a full-time equivalent employee who were employed from 1 September 2050 to 31 December 2050.
The full-time equivalent employee numbers of UK Co 1 would be calculated as:
- 100, plus
- 10 multiplied by 50% = 5, plus
- 12 multiplied by 75% = 9, plus
- (24 multiplied by 50%) multiplied by 25% = 3
The total of a) to d) above is therefore 117.

Example 2

UK Co 2 has determined its full-time equivalent employee numbers to be 240 for the entire accounting period beginning on 1 January 2036 and ending on 31 December 2036. However, UK Co 2 only became a member of the group, Alpha Group, on 1 July 2036.

When determining the allocation of an untaxed amount within Alpha Group for the accounting period, the employee numbers for UK Co 2 should be adjusted to reflect the fact that it only joined the Alpha Group part way through the accounting period.

There were no significant changes to the headcount of UK Co 2 over the period. Therefore, the full-time equivalent employee number for UK Co 2 would be based on 50% of the full-year figure (6 months divided by 12 months). The full-time equivalent employee number for UK Co 2 would be 120 (240 multiplied by 50%).

The adjustments to the full-time equivalent employee numbers should be on a just and reasonable basis. Had UK Co 2 significantly increased its employee headcount after joining Alpha Group, then a figure higher than 120 would be just. Conversely, a lower figure would be just if UK Co 2 had significantly decreased its employee headcount after joining the group.