The United Kingdom: the hearings that built a tax

In November 2012, three large multinationals sat in front of a committee of MPs and explained, accurately, how they paid very little UK corporation tax on very large UK sales. None of it was illegal. Within three years the UK had a new tax built specifically to answer what those hearings exposed.

The gap, made public: the 2012 to 2013 PAC hearings

On 12 November 2012 the House of Commons Public Accounts Committee took evidence from executives of three large multinationals: a global coffee chain, an online retailer and a search-and-advertising group. The structures were laid out on the record. The coffee chain had paid around £8.6m in UK corporation tax over roughly fourteen years on UK sales of about £3bn, by routing non-US sales through an Irish subsidiary, paying brand royalties to a Dutch entity, and buying coffee through a Swiss one. (Reported figures vary between £8.6m and £1.6m depending on the window and whether the count is corporation tax only.) The online retailer's principal UK division paid under £1m in income tax while UK sales were estimated in the billions, because sales were booked through Luxembourg and the UK entity was treated as a service company. The search-and-advertising group booked UK-generated advertising revenue through its Irish entity.

The Committee's report called the arrangements "immoral" and accused HMRC of being too lenient. Its chair said there was a danger corporation tax was becoming "voluntary." A follow-up report in June 2013 criticised the "evasive evidence" given by the search-and-advertising group. None of this alleged illegality. It alleged that the rules let large companies do legally what a domestic business cannot, and the hearings were a direct catalyst for the legislation that followed.

The UK's answer: the Diverted Profits Tax

The Diverted Profits Tax came into force on 1 April 2015, enacted specifically in response to those hearings. It targeted two behaviours: connected-party arrangements that "lack economic substance" and exploit tax mismatches, and non-UK companies structured to supply into the UK without creating a taxable presence here. The rate started at 25%, a deliberate 5-point premium over the then 20% corporation tax rate, and rose to 31% from April 2023 when the main rate went to 25%. The premium is the point: it is designed to make diverting profit more expensive than just paying the tax.

DPT is not self-assessed. A company notifies HMRC, HMRC issues a preliminary notice, then a charging notice, and the tax must be paid within 30 days, with no right of appeal before payment. From its introduction in April 2015 to March 2025, diverted-profits work secured more than £10.5bn. In 2024 to 2025 alone, HMRC's transfer-pricing yield was £3,387m, nearly double the £1,786m of the year before. From November 2025 the DPT is being repealed and folded back into the corporation tax regime as the Unassessed Transfer Pricing Profits rules, for accounting periods beginning on or after 1 January 2026, at a rate of the CT rate plus 6%.

The other tools sit behind it. The General Anti-Abuse Rule (Finance Act 2013) applies a double-reasonableness test to abusive arrangements across seven taxes, with a 60% penalty added by Finance Act 2016. The reformed Controlled Foreign Companies regime (Finance Act 2012) uses a gateway test that targets only profits artificially diverted from the UK.

Pillar Two: the Multinational and Domestic Top-Up Taxes

The UK was an early adopter of the OECD global minimum tax. The Multinational Top-Up Tax (an Income Inclusion Rule) and the Domestic Top-Up Tax (a qualified domestic minimum tax) were enacted in the Finance (No.2) Act 2023 and apply to accounting periods beginning on or after 31 December 2023. Both bite on groups with consolidated revenue above €750m. The Undertaxed Profits Rule, the backstop, was legislated in Finance Act 2025 for periods beginning on or after 31 December 2024. First top-up tax returns are due by 30 June 2026.

There is a hole in it. Following US pressure, the G7 agreed on 28 June 2025 a "side-by-side" arrangement under which US-parented groups are excluded from the Income Inclusion Rule and the Undertaxed Profits Rule, with the US GILTI regime treated as co-existing. The practical effect is that the largest single source of profit-shifting, US multinationals, sits partly outside the rule the UK helped design.

What the UK loses, and what it inflicts

The UK loses about $16.9bn a year ($16,899.8m) to cross-border corporate tax abuse, from the State of Tax Justice 2024 (data year 2021). The same dataset shows the UK inflicts about $23.5bn ($23,451.3m) of loss on other countries through its own financial and territorial network. The UK is, in this accounting, a net exporter of the problem.

The domestic gap is documented too. HMRC's Measuring Tax Gaps 2025 puts the total UK tax gap at £46.8bn, or 5.3% of liabilities, the highest cash value ever recorded. The corporation tax gap alone is £18.6bn, 15.8% of theoretical CT liability. Small businesses account for 60% of the total gap, which is the part worth sitting with: the people most often cast as the risk are the small firms, while the structural cross-border losses sit with the largest.

What a UK small business can legitimately do

Nothing on this page is a route a small company can copy, and that is the entire point. What a UK business can use is the ordinary domestic toolkit: the Annual Investment Allowance gives a 100% deduction on up to £1m of plant and machinery a year. The Employment Allowance takes up to £10,500 off the employer National Insurance bill, which over 99% of micro-businesses can claim. Small Business Rate Relief gives 100% relief on premises with a rateable value of £12,000 or less. Research and Development relief runs through the merged RDEC scheme at a 20% gross credit, with an enhanced 27% cash credit for loss-making R&D-intensive SMEs. These are real and worth claiming. They are also not the same category of thing as relocating profit to another country, and no amount of them closes the gap this page describes.