MTT32010 - Calculating top-up amounts: Substance based income exclusion: Overview

The substance based income exclusion (SBIE) is a formulaic carve-out of profits generated from routine activities. It is set out in sections 195 to 198ZA of Finance (No.2) Act 2023.

The amount that is excluded (the ‘SBIE amount’) consists of two elements, the payroll carve-out and the tangible asset carve-out.

The SBIE amount is calculated for a territory for a period and is deducted from the total adjusted profit for that territory (see MTT31010).

There are rules for calculating the eligible payroll costs (see MTT32020) and the tangible asset amount (see MTT32030).

There are special rules for employees and assets which are internationally mobile (see MTT32050).

There are special rules for calculating the eligible tangible asset amounts of assets which are subject to a lease, including dual use assets (see MTT32060).

Calculating the SBIE amount

The SBIE amount consists of:

  • a percentage of the eligible payroll costs, and
  • a percentage of the eligible tangible asset amount.

The percentage to be used when determining the SBIE amount for a period depends on the calendar year in which the period began:

Periods beginning in
 Payroll Percentage
 Tangible asset Percentage
2023 10 8.0
2024 9.8 7.8
2025 9.6
 7.6
2026 9.4
 7.4
2027 9.2 7.2
2028 9 7
2029 8.2 6.6
2030 7.4 6.2
2031 6.6 5.8
2032 5.8 5.4
2033 5 5

SBIE not compulsory

Claiming the SBIE is voluntary. This means that when a group prepares its claim, it can choose to claim none, or only some, of its total eligible payroll or tangible assets when calculating the SBIE.

It might do this where the cost of accurately determining its payroll costs or tangible asset amount is large relative to the amount of top-up tax that is due, or where it is particularly difficult to determine the location of an asset or employee throughout the year.

Investment entities

The SBIE is calculated on an entity-by-entity basis for investment entities. See MTT45140 for guidance.