HMRC have launched a ‘nudge’ campaign targeting the corporation tax treatment of management expenses for UK holding companies of overseas subsidiaries.

This focus on the treatment of management expenses for holding companies is closely tied to transfer pricing compliance and coincides with upcoming UK transfer pricing reform as set out in Autumn Budget on 26 November 2025.

What are nudge letters?

Nudge letters are sent by HMRC to encourage taxpayers to review their tax affairs. They typically highlight specific areas of focus or increased scrutiny, giving recipients the opportunity to make amendments or disclosures where appropriate.

Management expenses and transfer pricing

HMRC have sent letters to taxpayers and agents to highlight the distinction between expenses incurred in managing a holding company’s investment business (generally known as ‘shareholder costs’), and expenses incurred by the holding company that benefit the businesses or trades of its subsidiaries.

Shareholder costs are generally deductible as management expenses in the holding company, provided they are not capital in nature. Expenses related to the subsidiaries’ trade or business, would be non-deductible however, unless recharged under transfer pricing principles to the relevant subsidiary.

HMRC emphasises that the key test for being able to recharge a subsidiary is whether the subsidiary would have paid for the services received, if they were received from an unconnected entity. This means that where a holding company incurs costs that benefit subsidiaries, such as operational support, strategic planning, or shared services, these likely constitute intra-group services, and as such should be recharged appropriately.

Under UK transfer pricing rules, these recharges must be calculated on an arm’s length basis, supported by documentation demonstrating the benefit to each subsidiary and the rationale for the pricing. Failure to apply these principles can lead to adjustments, penalties, and increased scrutiny from HMRC.

What this means for you

Receiving a nudge letter doesn’t mean HMRC believes you’ve done something wrong, rather HMRC is encouraging companies to revisit how they are allocating and documenting management costs and head office charges to ensure compliance.

If you have received a letter from HMRC and require support, or wish to take proactive steps to ensure compliance with the UK transfer pricing rules, please get in touch.

Our team has extensive experience advising multinational groups across both tax compliance and transfer pricing.