Diverted Profits Tax

Diverted Profits Tax: What Businesses Need to Know

The Diverted Profits Tax (DPT) was introduced in the UK on 1 April 2015 as an anti‑avoidance measure aimed at large multinational groups. It targets businesses that use contrived or artificial arrangements to divert profits overseas, reducing the amount of tax paid in the UK.

Small and medium‑sized enterprises (SMEs) are excluded from the DPT rules.

What is DPT designed to do?

DPT is intended to change behaviour, not simply raise tax. By applying a higher tax rate than Corporation Tax, it encourages large businesses to align their tax position with where real economic activity takes place.

DPT rate: 31%

Corporation Tax main rate: 25%

This 6% uplift is deliberate, encouraging affected groups to restructure arrangements and instead pay Corporation Tax on profits generated in the UK.

When can DPT apply?

HMRC guidance explains that DPT is aimed at large groups that:

• Avoid creating a UK permanent establishment, bringing a foreign company outside the scope of UK Corporation Tax despite significant UK activity; or
• Use arrangements that lack economic substance, exploiting tax mismatches through intra‑group payments or diverted income.

The focus is on arrangements that are artificial, contrived, and not supported by genuine commercial substance.

What’s changing?

The UK tax system is evolving. For accounting periods starting on or after 1 January 2026, the government is moving away from DPT as a standalone tax and bringing profit diversion rules more directly within the Corporation Tax framework, through the new Unassessed Transfer Pricing Profits (UTPP) regime.

While the mechanism is changing, the policy intent remains the same: ensuring profits are taxed in the UK in line with economic activity and substance.

In summary

Although DPT affects a relatively small number of large businesses, it underlines HMRC’s continued focus on substance, transparency, and profit alignment. Groups operating internationally should regularly review their structures, transfer pricing, and UK tax position to ensure they remain robust as the rules continue to develop.

If you’d like to discuss how these changes may affect your business, our tax team would be happy to help. Give them a call on 01380 723692 or email us here.