What is the Management and Control test ?

What is the ‘Management and Control’ case law rule ? This short article aims to explain its significance.

There has never been a statutory definition of what makes a company resident for UK tax purposes. However it has long been recognised that the residence of a company for UK tax purposes is determined according to where its central management and control is to be found.

Put simply, ‘Management and Control’ case law rule says that if a company, any company – regardless of its place of incorporation, is managed and controlled in the UK then that company will be liable to UK corporation tax, as if it was incorporated in the UK.

As a result offshore companies that are controlled by principals who are resident in the UK are likely to be deemed by HMRC to be UK resident for tax purposes.

What constitutes ‘management and control’ ?

This is a subjective area – there is a body of case law which is relevant in determining where the mind and management are.The most relevant cases being De Beers Consolidation Mines Ltd v Howe in 1906, Bullock v The Unit Construction Co Ltd, Wood v Holden, Laerstate BV v HMRC and Development Securities v HMRC

There is quite a lot of information in HMRCs handbook on this topic.

Historically evidence to rebut the presumption of UK tax residency has relied on company documents such as board minutes but the advent of email and other electronic messaging means HMRC have much more information available to them. Realistically in marginal cases, this makes a slip up more likely and therefore makes it easier for HMRC to make a case for UK residency.

Even where the Management and Control test does not pose a problem then the s720 deemed income provisions should be considered.