UK companies with overseas branches should review the effect on losses and cash tax before relying on historic treatment in their forecasts. The relevant reform concerns foreign permanent establishments, not an overseas subsidiary merely because it is part of the group.
What is the current legislative position?
HMRC published draft legislation on 13 July 2026, following its May announcement. The consultation closed on 13 September 2026. The July material proposes mandatory exemption for accounting periods beginning on or after 1 January 2027, replacing the elective approach. This remains a draft-legislation assessment, not a statement that the final legislation has been enacted.
The July proposals include transitional restrictions on carrying forward losses and other amounts attributable to a foreign permanent establishment, and targeted anti-avoidance provisions. The purpose-based rule is intended to apply to arrangements made on or after 13 July 2026. Obtain specific advice before restructuring or changing an accounting period in response.
Why can the change affect cash?
A forecast may assume that overseas branch losses will reduce the UK corporation tax charge. If that relief ceases or historic attributes are restricted, the cash-tax cost can differ from the existing forecast. Exemption of branch profits should not be viewed separately from the treatment of losses, foreign tax and transition.
What should the finance team assemble?
- The legal and operating structure of every overseas activity, identifying branches and subsidiaries separately.
- Evidence of any existing foreign-branch exemption election and when it took effect.
- Branch-by-branch profits, losses and tax attributes reconciled to prior computations.
- Foreign tax paid, double taxation relief calculations and unresolved overseas tax matters.
- Forecast branch results and planned changes to funding, operations or ownership.
How should the board use the analysis?
| Question | Decision it informs |
|---|---|
| How much forecast UK tax relief depends on branch losses? | Whether cash forecasts and funding headroom need revision. |
| Which historic amounts may be restricted? | Whether transition assumptions need specialist assessment. |
| Are records sufficient to separate UK and branch results? | Who must resolve missing data before the next tax computation. |
| Are transactions or restructurings planned? | Whether advice is needed before committing to them. |
For example, a UK company expanding through an overseas branch should compare its current tax forecast with a scenario in which future branch losses do not shelter UK profits. That modelling should be labelled provisional and revisited when the final rules are available. It is a planning illustration, not a recommended restructuring.
Sources and further guidance
Check the applicable commencement separately
The July 2026 HMRC publication still presents draft legislation on the general reform. The earlier May policy announcement also identified an accelerated timetable for certain oil and gas activities. Such companies should obtain specific advice on applicable commencement and enacted rules rather than apply the general January 2027 assumption.
HMRC July publication and May policy announcement, rechecked 21 October 2026. A policy announcement or draft is not evidence that every provision has been enacted.
Discuss your next step
Bring your latest accounts, ownership structure and a summary of the transactions or changes you need to assess. We can agree the appropriate scope and any specialist input required. Discuss your corporation tax position
Reviewed 26 September 2026. General guidance; the appropriate approach depends on your organisation and circumstances.