The Standing Mandate: Group Tax Payments and the Subsidiary Board's Duty to Look Again

For many UK groups, the HMRC group payment arrangement is one of the least examined documents in the corporate folder. It was signed when the group was smaller, when the nominated company was obvious and when everyone knew who funded the quarterly payments. Years later, the arrangement may still be in force, but the facts around it have moved. Entities have been bought and sold, cash has been repatriated differently and the board that originally approved participation may no longer be in post.

Ahead of the 2026 filing season, subsidiary boards should treat the arrangement as a live governance instrument rather than an administrative relic. The question is not whether the group pays its corporation tax. It is whether each company can explain, with evidence, why its cash left when it did, who authorised the payment and what happens if the arrangement outlives the commercial relationship that justified it.

What the arrangement commits, in plain terms

HMRC group payment arrangements allow a nominated company to make corporation tax payments on behalf of participating companies. The nominated company deals with HMRC; allocations determine which company's liability is treated as settled. That simplicity is the attraction. It reduces the number of separate payments and gives the group a single point of contact.

It also creates a standing delegation. A company may be liable for tax, but another company may fund it. The nominated company may be the parent, a service company or an entity with no direct interest in the subsidiary's profits. If the arrangement is not reviewed, the board can lose sight of the link between tax liability, cash movement and authority.

Cash: whose money leaves first

The first question for any subsidiary board is funding. Does the company pay its own share into the nominated company's account before the HMRC payment date, or does the parent fund the payment and recharge later? If the parent funds it, is the recharge at cost, with interest, or on some other basis? If the subsidiary funds it, what protection does it have if HMRC allocates the payment to another entity's liability?

These are not abstract treasury points. They affect working capital, covenant compliance and the reliability of intra-group balances at year end. A subsidiary that routinely funds the group's tax payment without a clear recharge agreement may be extending credit to its fellow companies without the board ever approving a credit facility. A parent that funds a subsidiary's tax may be creating an intercompany balance that needs documenting, not just eliminating on consolidation.

The board should see the payment timetable, the allocation schedule and the recharge calculation. It should know which bank account is used, who releases the payment and what happens if the nominated company fails to pay. The arrangement should not depend on an individual finance manager's inbox.

Governance: a standing authority, not a set-and-forget

Group payment arrangements are often approved once by a parent board resolution and then left to finance. That may be efficient, but it is not enough for a group of any complexity. Each participating company should be able to point to a board decision, or a delegated authority within clear limits, that permits its participation and the funding mechanism.

The subsidiary board should also ask who monitors the arrangement. Is there a named owner in group tax? Are changes to the nominated company approved at the right level? Does the board receive confirmation that HMRC has accepted the allocation? Are there conflicts if the nominated company is also a creditor of the subsidiary?

Directors of subsidiary companies have duties to their own company. They cannot simply defer to group finance if a payment decision affects their entity's solvency or its relationships with creditors. A periodic paper to the subsidiary board, even a short one, can record the arrangement's status, the cash funded, the amounts recharged and any changes. That paper is also useful evidence if the arrangement is questioned later.

Exit: sale, liquidation and the entity that leaves

The arrangement is most likely to cause difficulty when an entity leaves the group. On a sale, the subsidiary may need to exit the group payment arrangement. The sale agreement should address final allocations, outstanding recharges and any liability that remains with the group after completion. An indemnity may cover the tax itself, but it will not necessarily resolve the cash already paid or the administrative steps needed to remove the entity from the arrangement.

Liquidation raises similar questions. A company in liquidation may still have tax liabilities, and its participation in a group payment arrangement may complicate the final position. The board and its advisers should establish what has been allocated, what remains outstanding and what correspondence has passed with HMRC. Do not assume that liquidation automatically ends the arrangement in a clean way.

The audit trail for the 2026 year-end file

Auditors and tax reviewers will look for consistency. The year-end file should show the nomination and acceptance, the list of participating companies, the allocation statements, board approvals, recharge invoices and the intercompany balances that follow. If the group has changed shape during the year, the file should explain when entities joined or left and how final allocations were dealt with.

Disclosure also matters. The statutory accounts may need to reflect intra-group balances, commitments or contingencies connected with the arrangement. A payment made by one company for another is not necessarily a simple settlement; it can create a receivable, a payable or a guarantee-like exposure. The board should be satisfied that the accounting treatment matches the legal and commercial reality.

Five questions for the subsidiary board

1. Who funds our corporation tax payment, and under what authority?
2. What is the recharge basis, and has the board approved it?
3. Can we see the allocation of payments to our liability?
4. What happens to the arrangement if we are sold or liquidated?
5. Where is the evidence in the 2026 year-end file?

A group payment arrangement is a useful mechanism. It is not a substitute for governance. The subsidiaries that can answer these questions plainly will be better placed when the filing season arrives, and better protected if the group's shape changes again.