CT600B: controlled foreign companies and hybrid mismatches, box by box

A UK company that owns a stake in an overseas company, runs an overseas branch, or deals with entities that are taxed differently in two countries may have to file CT600B with its Company Tax Return. The page does three jobs: it declares the controlled foreign company (CFC) charge, it records the first period of a foreign permanent establishment exemption election, and it discloses hybrid and other mismatches under Part 6A of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). This guide explains when you need a CT600B, how the CFC charge is worked out, how to complete the page in Tax Optimiser, and what every box from B1 to B85 means.

When a company needs a CT600B

File a CT600B, and tick box 100 on the CT600, if any one of these applies to the return period:

• The company holds a relevant interest of at least 25% in a CFC whose accounting period ends in (or is the same as) the company’s period, and the CFC is not covered by one of the exemptions that take it off the page altogether (see below).
• The company is a hybrid entity, or had transactions with hybrid entities in the same control group.
• There was a hybrid or other mismatch under chapters 3, 6 or 8 of Part 6A TIOPA 2010, or a counteraction was made under any chapter of Part 6A.
• A deduction was made under section 259LA, or the company made or consented to a claim to allocate a dual inclusion income surplus under section 259ZMB.
• This is the first period to which a foreign permanent establishment exemption election applies.

Most owner-managed companies never need the page. It matters for UK groups with overseas subsidiaries, companies with overseas branches, and companies that borrow or lend across borders through instruments or entities that are treated differently in each country.

What a controlled foreign company is

A controlled foreign company is a company resident outside the UK that is controlled by UK residents. The CFC rules in Part 9A TIOPA 2010 stop profits that really belong in the UK being parked in a low-tax country: if a CFC has profits that pass through the rules’ gateway, the UK company with a relevant interest pays a CFC charge on its share of them, as if they were its own.

The rules work in layers, and that is also how the CT600B is filled in:

• Entity-level exemptions can take a CFC out of the rules entirely. CFCs that meet the tax exemption, the excluded territories exemption or the low profit margin exemption are simply not listed on the CT600B. CFCs that meet the exempt period exemption or the low profits exemption are listed, with the exemption named in column C.
• The gateway (chapter 3, then chapters 4 to 8) decides which of a CFC’s profits are chargeable. If the gateway lets none through, the CFC is listed with the chapter that excluded its profits in column C.
• Chapter 9 can fully or partly exempt profits from qualifying loan relationships. A full exemption goes in column C; a partial one is shown as a relief in column H.

Only when a charge actually arises are columns D to J completed.

How the CFC charge is worked out

For each chargeable CFC:

1. Take the CFC’s chargeable profits (column E): the profits that pass through the gateway, calculated under section 371BA, before any chapter 9 claim.
2. Apportion them by the UK company’s percentage (column D) — usually its direct and indirect share of the CFC’s ordinary share capital.
3. Charge that share at the UK Corporation Tax main rate to get the tax on chargeable profits (column F).
4. Deduct creditable tax (column G), reliefs in terms of tax such as a partial chapter 9 exemption (column H) and any restricted surplus ACT (column I).
5. What is left is the CFC charge due (column J).

Worked example. A UK company owns 75% of Cayman Treasury Limited, whose chargeable profits are £80,000. Its share is £60,000, and at the 25% main rate the tax on chargeable profits is £15,000. Creditable tax of £1,200 and chapter 9 relief worth £800 in tax leave a CFC charge of £13,000. That figure is B30, and B30 goes into box 490 on the CT600. The company also owns Jersey Services Limited, which meets the low profits exemption, so that CFC is listed with “Low Profits Exemption” in column C and no figures.

The CFC charge is paid with the company’s Corporation Tax: box 490 feeds box 500 and then box 510, the total tax chargeable, so it is due on the same date.

The foreign permanent establishment exemption

A UK company with overseas branches can elect under section 18A of the Corporation Tax Act 2009 to exempt the profits (and losses) of all its foreign permanent establishments from UK tax. The election is irrevocable and covers every branch, so losses from a loss-making branch are lost to the UK as well. Tick box B35 only in the first accounting period to which the election applies. HMRC’s International Manual at INTM281010 covers the detail.

Hybrid and other mismatches in plain English

A hybrid mismatch arises when a payment or an entity is treated differently by two tax systems, so that the same expense is deducted twice, or a deduction in one country is never taxed as income in the other. Part 6A TIOPA 2010 counteracts the mismatch, typically by denying the UK deduction or taxing an amount in the UK. The CT600B does not ask you to calculate the counteraction on the form; it asks you to disclose that one of the situations applied, and to state a handful of totals:

• B40 to B60 are yes/no disclosures: the company is a hybrid entity, it transacted with hybrid entities in its control group, it had a financial-instrument mismatch, an excessive permanent establishment deduction, or a multinational payee mismatch.
• B65 and B70: whether a counteraction was made, and its total.
• B75: deductions allowed under section 259LA.
• B80 and B85: dual inclusion income (DII) surplus allocations. DII is income taxed in both countries, and it can shelter a hybrid deduction; a DII surplus can be moved between group companies under section 259ZMB.

Boxes B40 to B85 are required on returns first submitted from April 2022. They are not required on an amended return.

Completing the CT600B in Tax Optimiser

Open the period’s Corp Tax workspace and choose CFCs & Hybrids in the menu on the left. The page has three tabs, one for each part of the form, and every box has an information icon: hover over it for a summary of HMRC’s instructions, or click it to open HMRC’s guidance at the paragraph for that box.

1. Company information shows boxes B1 to B4. They are filled in for you from the organisation and the return period; change them on the General tab if they are wrong.
2. Controlled foreign companies is the B5 table. Click Add CFC for each company and enter its name and territory of residence. If an exemption applies, pick it in Exemption due and the calculation columns disappear. Otherwise enter the percentage, chargeable profits, tax on chargeable profits, creditable tax, reliefs and ACT. CFC charge due and the totals B10 to B30 are calculated as you type. Tick B35 underneath if this is the first period of a foreign permanent establishment election.
3. Hybrid & other mismatches holds the B40 to B65 tick boxes and the B70 to B85 totals. B70 only opens once B65 is ticked, because HMRC requires the two together.

Click Save. As soon as the page has any entry, Tax Optimiser ticks box 100, carries B30 into box 490, attaches the CT600B to the return that goes to HMRC, adds a Controlled foreign companies and hybrid mismatches page to the tax computation and shows the charge on the Corporation Tax page. The completed form can be viewed or downloaded under Supplementary pages on the CT600 PDF tab. A table of more than twelve CFCs continues on extra copies of the form’s second page, with the totals printed once on the last.

Before filing, Tax Optimiser checks the things HMRC’s validation rejects: a name or territory that is missing, shorter than two characters, longer than 56 or contains £ $ # ~ or €; a charged row with no percentage or chargeable profits; credits and reliefs larger than the tax (a negative column J); and B65 ticked without a B70 total.

What Tax Optimiser does not do is the CFC computation itself: working out a CFC’s chargeable profits, testing the gateway and the exemptions, or calculating creditable tax is specialist work, and the figures in columns E to I come from that work. The software does the arithmetic HMRC checks (column J and the totals) and keeps the CT600, the CT600B, the computation and the PDF consistent.

Periods longer than twelve months are filed as two returns, and the CT600B (with box 490) is attached to the first return. Enter the CFCs whose accounting periods end in that first return period; the Corp Tax page shows a reminder when this applies.

CT600B box by box

Box B1 — Company name

The company’s registered name, as on the CT600.

Box B2 — Tax reference

The company’s 10-digit Unique Taxpayer Reference (UTR).

Boxes B3 and B4 — Period covered by this supplementary page

The start and end dates of the return period. It cannot exceed 12 months, so a long period of account has one CT600B for its first return.

Box B5 — The controlled foreign company table

One row per CFC in which the company has a relevant interest, apart from those meeting the tax, excluded territories or low profit margin exemptions, which are left off.

Column A — Name of CFC

The CFC’s full name, 2 to 56 characters.

Column B — Territory of residence

Where the CFC is resident, determined under chapter 20 of Part 9A TIOPA 2010.

Column C — Type of exemption due (if any)

Complete this only if the company is a chargeable company but all the CFC’s profits are excluded from charge. Enter Gateway chapter 3 if chapters 4 to 8 do not apply; the chapter number (4 to 8) considered if no chargeable profits arise under it; Chapter 9 if qualifying loan relationship profits are fully exempt; or Exempt Period Exemption or Low Profits Exemption. When column C is completed, columns D to J are left blank — in Tax Optimiser choosing an exemption hides them, and the figures are not sent to HMRC.

Column D — Percentage of apportionable profits and creditable tax

The percentage of the CFC’s chargeable profits apportioned to the company (P% in section 371BC), to two decimal places. Usually the share of ordinary share capital held directly or indirectly by the UK company, not counting associated or connected persons.

Column E — Chargeable profits

The CFC’s profits that pass through the gateway in chapters 3 to 8, calculated under section 371BA, in whole pounds and before any chapter 9 claim.

Column F — Tax on chargeable profits

The UK tax on the company’s apportioned share of the chargeable profits, before credits and reliefs.

Column G — Creditable tax

Tax already paid on the chargeable profits that can be set against the charge.

Column H — Reliefs in terms of tax

The tax on profits excluded by a chapter 9 claim (qualifying loan relationships), where the exemption is partial.

Column I — ACT as restricted

Unrelieved surplus advance corporation tax set against the charge, as restricted under section 32 of the Finance Act 1998. Rare today.

Column J — CFC charge due

Column F minus columns G, H and I. HMRC checks this exact identity, so Tax Optimiser calculates it rather than asking you to type it; it cannot be negative.

Box B10 — Total tax on chargeable profits

The total of column F.

Box B15 — Total creditable tax

The total of column G.

Box B20 — Total reliefs in terms of tax

The total of column H.

Box B25 — Total ACT as restricted

The total of column I.

Box B30 — Total CFC charge due

The total of column J, entered in box 490 of the CT600. HMRC requires box 490 to equal B30 whenever B30 is present — even when credits reduce the charge to nil — and Tax Optimiser writes both from the same figure.

Box B35 — First period of a foreign permanent establishment exemption election

Tick if this is the first period in which an election for the foreign permanent establishment exemption (section 18A CTA 2009) applies. Leave it blank in later periods.

Box B40 — The company is a hybrid entity

Tick if the company is a hybrid entity as defined in section 259BE TIOPA 2010: broadly, it is treated as a person for tax purposes in one territory but its income or profits are treated as someone else’s in another.

Box B45 — Transactions with hybrid entities in the same control group

Tick if there were payments or quasi-payments to or from hybrid entities in the same control group as the company.

Box B50 — Hybrid or otherwise impermissible deduction/non-inclusion mismatches in connection with a financial instrument

Tick if there was a deduction/non-inclusion mismatch in connection with a financial instrument and the other conditions of section 259CA are met (the counteraction is in section 259CB).

Box B55 — Excessive permanent establishment (PE) deduction

Tick if there was an excessive PE deduction and the conditions of section 259FA are met.

Box B60 — Multinational payee deduction/non-inclusion mismatch

Tick if there was a multinational payee deduction/non-inclusion mismatch and the conditions of section 259HA are met (the counteraction is in section 259HB).

Box B65 — Counteraction under Part 6A TIOPA 2010

Tick if a counteraction under any chapter of Part 6A affects the tax payable. Ticking it makes box B70 compulsory.

Box B70 — Total counteraction

The total amount of the counteraction, in whole pounds. Leave out amounts deducted in the current period only because they are matched by dual inclusion income, and note the figure in the computations.

Box B75 — Total section 259LA TIOPA 2010 deduction

The total deducted under section 259LA because the corresponding ordinary income arose outside the permitted period, in whole pounds. Note it in the computations.

Box B80 — Total claim for allocation of DII surplus that the company has made

The total of claims the company has made under section 259ZMB to allocate its dual inclusion income surplus to other group companies.

Box B85 — Total claim of DII surplus that the company has consented to

The total of claims by other group companies to allocate a DII surplus to this company that the company has consented to.

Main return: boxes 100, 490, 500 and 510

Box 100 is ticked when the CT600B is attached. Box 490, CFC tax payable, equals B30, and flows into box 500 (CFC tax, bank levy, bank surcharge and RPDT payable) and box 510 (tax chargeable). Tax Optimiser sets all of them from the CT600B — HMRC rejects a return with box 490 but no box 100, or a CT600B whose B30 differs from box 490.

Common questions

Where to go next

• Corporation Tax in Tax Optimiser — the full journey from trial balance to filed return.
• CT600 box-by-box guide — every box on the main return.
• HMRC’s CT600B guidance — the official notes for every box.
• HMRC’s International Manual — the CFC rules (INTM190000 onwards) and hybrids (INTM550000 onwards).