LAM05030 - Apportionment rules: Acceptable commercial method: agreement of a method

The onus is on the company to develop and adopt methodologies that meet the statutory requirements and submit its return accordingly. HMRC encourages companies to discuss any new methodology, or changes to existing methodologies with a view to agreeing a suitable method, that complies with statute, before it is used in making a return.

Such discussions are helpful to both sides – and can result in a suitable method being effectively agreed before it is used in making a return. Although such a method will still remain subject to possible enquiry it would be unusual for the principle of any previously agreed method to be challenged, unless there has been a material change of facts. In these circumstances the company should be asked to demonstrate that the method continues to fairly represent the underlying reality and does not artificially distort the result of the method.

It is not expected that agreed allocation methods applied by a company will change significantly from year to year, unless in response to major changes to the business, or the way in which it operates or is managed.

HMRC would expect companies to document (and, on request, share details) of how their allocation methodology:

• relates to the company’s internal accounting systems, and
• how those accounting systems support its commercial objectives.

It is expected that there will be variation in the sophistication of allocation within commercial systems.