HMRC is aware that some agents are encouraging companies to make accounting provisions for a potential breach of the GDPR rules.  

The intention is to create an expense that reduces the company’s corporation tax liability in its latest tax return, or to generate a repayment where tax has been paid for a prior period. In some cases, the provisions are linked to claims for research and development (R&D) tax relief to increase the amount of the R&D tax credit.  

In order to create an allowable expense, a provision must be made in accordance with generally accepted accounting practice.  Broadly, under FRS 102, it is only possible to recognise a provision where the following three conditions are all met: 

• the entity has an obligation at the reporting date as a result of a past event;
• it is probable (ie, more likely than not) that the entity will be required to transfer economic benefits in settlement; and
• the amount of the obligation can be estimated reliably. 

In its guidance, HMRC sets out how the arrangements currently being marketed to companies are said to work. HMRC does not believe that GDPR provisions of this nature meet the conditions for tax relief. HMRC says that it will challenge companies that make claims for tax relief on this basis, and agents that encourage or facilitate such behaviour.  

HMRC’s guidance: 

• explains how arrangements involving GDPR provisions are marketed to companies, so that they can spot them;
• warns companies that make GDPR provisions that HMRC will seek to claim all the tax back, plus interest, and may charge penalties;
• asks companies that have made GDPR provisions to contact HMRC to discuss correcting their tax returns. HMRC says that a company can minimise interest and penalties, and avoid any costs of investigation and litigation, if it settles its tax affairs. HMRC also encourages the company to seek independent tax advice;
• sets out how HMRC will use its range of civil and criminal powers to deal with agents it believes are encouraging companies to make incorrect GDPR claims; and
• provides links to the online form and phoneline for reporting tax fraud.  

Further information 

• HMRC’s Spotlight 65
• ICAEW’s hub FRS 102: Provisions and contingencies under UK GAAP