MTT09520 - Miscellaneous pages: Accounting terms: Consolidated financial statements
Source: gov.uk (2025-08-07)


The consolidated financial statements of a group are the financial statements prepared by the ultimate parent which present, as a single economic unit, the assets, liabilities, income, expenses and cash flows of the ultimate parent and all other entities in which the ultimate parent has a controlling interest.

The consolidated financial statements must be prepared in accordance with an acceptable accounting standard (see MTT09510 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt09510)).

This is set out in Section 249 of Finance (No.2) Act 2023.

Group consisting of a main entity and its permanent establishments

Where a multinational group consists solely of a single main entity and any number of permanent establishments, the consolidated financial statements are the financial statements of the ultimate parent, which is the main entity.

The statements must be prepared in accordance with an acceptable accounting standard.

Consolidated financial statements not prepared to an acceptable accounting standard

In circumstances where consolidated financial statements are prepared, but not to an acceptable accounting standard, the financial statements must be adjusted to prevent material competitive distortions.

Financial statements include ‘competitive distortions’ if the application of a specific principle or procedure of the accounting standard results in a difference in the treatment of an item in those accounts, when compared to the notional treatment of that item in accounts prepared under International Financial Reporting Standards.

Competitive distortions are ‘material’ if the sum of all the competitive distortions in the financial statements exceed €75 million.

Deemed consolidation where no consolidated financial statements are prepared

In some cases, no consolidated financial statements will be produced by an entity that may have controlling interests in other entities, and is not controlled by any other entity. The entity must then select an accounting standard and its consolidated financial statements will be the statements that would have been produced, had the entity produced consolidated financial statements under that standard.

The performance of this requirement is sometimes referred to as ‘deemed consolidation’, and the hypothetical set of consolidated financial statements the ‘deemed consolidated financial statements’.

The accounting standard chosen by the entity must be an authorised accounting standard that is either:
- an acceptable financial accounting standard, or
- an accounting standard applied with adjustments to prevent material competitive distortions.
The questions of whether an ownership interest is a controlling interest, and then in turn whether the entity holding that interest is an ultimate parent, are dependent on the accounting standard used to prepare the consolidated financial statements. It is therefore necessary for any entity in which no other entity has a controlling interest to identify a set of deemed consolidated financial statements, in order to determine whether it has controlling interests and is consequently an ultimate parent.

If the entity chooses an accounting standard which does not require it to consolidate other entities, the deemed consolidation is not required. In this case, for the purposes of MTT, the entity will not be an ultimate parent nor will it have a controlling interest in any other entity.

Note that the deemed consolidation requirement is not a requirement for consolidated financial statements to actually be prepared. When complying with MTT, the group must use the figures that would have been in the consolidated financial statements had they been prepared. If the ultimate parent decides to actually prepare such statements, these will meet one of the other definitions of consolidated financial statements and there will no longer be any deemed consolidation requirement.

Authorised accounting standard

An ‘authorised accounting standard’ is an accounting standard that is permitted by the body responsible for prescribing, establishing or acceptingaccounting standards in the territory where the entity is located (see MTT18010 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt18010)).

Domestic Top-up Tax – single entities

Single entities that are subject to DTT will not have consolidated financial statements. For single entities subject to DTT, references to consolidated financial statements should be considered as referring to the qualifying financial statements, which are the entity’s statements prepared in accordance with an acceptable accounting standard.

Where there are no such accounts, the entity must choose an accounting standard to determine a set of deemed financial statements.

The accounting standard chosen by the entity must be an authorised accounting standard that is either:
- an acceptable financial accounting standard, or
- an accounting standard applied with adjustments to prevent material competitive distortions.