Pillar 2 Top-Up Tax UK: HMRC Payment Guide for Multinationals

Introduction to Pillar 2 in the UK

The OECD's global minimum tax framework, known as Pillar 2, introduces a 15% effective tax rate floor for large multinational enterprises (MNEs). The UK has implemented these rules through the Domestic Top-up Tax (DTT) and Multinational Top-up Tax (MTT), effective for accounting periods beginning on or after 31 December 2023. HMRC has now published detailed guidance on how to pay these top-up taxes, including specific deadlines, payment methods, and reference number requirements.

This guide provides a comprehensive overview of the UK Pillar 2 payment process, helping tax teams navigate the new obligations and avoid costly penalties or interest charges.

Who Is Affected by UK Pillar 2 Top-Up Tax?

The UK Pillar 2 rules apply to multinational groups with consolidated revenue of €750 million or more in at least two of the four preceding fiscal years. The rules require such groups to calculate their effective tax rate on a jurisdiction-by-jurisdiction basis. If the effective rate in any jurisdiction falls below 15%, a top-up tax is levied to bring the rate up to the minimum.

There are two key taxes:

• Domestic Top-up Tax (DTT): Applies to low-taxed profits of UK entities within the group, ensuring the UK captures the top-up before other jurisdictions can under the Income Inclusion Rule (IIR).
• Multinational Top-up Tax (MTT): Applies to low-taxed profits of foreign subsidiaries where the ultimate parent entity (UPE) is in the UK, or where the UK exercises the IIR or Undertaxed Profits Rule (UTPR).

Groups with a UK UPE will typically be subject to both DTT and MTT, while groups headquartered elsewhere will only need to pay DTT on UK entities if their effective UK tax rate is below 15%.

Calculation Methods for Top-Up Tax

The top-up tax is calculated using the GloBE (Global Anti-Base Erosion) rules, which require a detailed jurisdictional effective tax rate computation. Key steps include:

1. Identify constituent entities in each jurisdiction (excluding excluded entities such as investment funds, pension funds, and government entities).
2. Calculate GloBE income or loss for each jurisdiction, starting from financial accounting net income with adjustments (e.g., for dividends, equity gains, and asset impairments).
3. Determine adjusted covered taxes – the total tax expense attributable to GloBE income, including deferred tax adjustments.
4. Compute the effective tax rate (adjusted covered taxes ÷ GloBE income) for each jurisdiction.
5. Calculate the top-up tax percentage = 15% minus the effective tax rate.
6. Apply the substance-based carve-out – an amount of income equal to 5% of tangible assets and payroll costs (transitioning to lower percentages over time) is excluded from the top-up calculation.
7. Compute the top-up tax = (GloBE income minus carve-out) × top-up tax percentage, less any qualified domestic minimum top-up tax (QDMTT) already paid.

Given the complexity, most affected groups will need specialized tax software or managed services to perform these calculations accurately.

HMRC Payment Deadlines for Pillar 2

HMRC has set specific deadlines for paying DTT and MTT, depending on the group's accounting period end date:

• First accounting period ending on or before 31 December 2024: Payment due by 30 June 2026.
• Accounting periods ending after 31 December 2024: Payment due 18 months after the last day of the accounting period.
• All other periods: The later of 30 June 2026 and 15 months after the period end.

For example, a group with a 31 December 2024 year-end must pay by 30 June 2026. A group with a 30 June 2025 year-end must pay by 31 December 2026 (18 months later).

Late payments will incur interest at HMRC's standard late payment rate. It is critical to mark these deadlines on your compliance calendar.

How to Pay: Methods and Reference Numbers

HMRC requires payments to be made using specific reference numbers and bank accounts. The following payment methods are accepted:

• Online bank transfer – most common method.
• CHAPS – same-day transfer for larger amounts.
• Faster Payments – for smaller amounts (typically under £1 million).
• Bacs – takes 3 working days.
• Cheque – payable to 'HM Revenue & Customs only'.

Each payment must include a 15-character reference number starting with 'X' to ensure correct allocation. HMRC provides separate bank account details for UK and overseas transfers, both in GBP. Tax teams should verify the latest account details on HMRC's official website before making payments, as these may change.

Practical Steps for Tax Teams

To prepare for Pillar 2 compliance, tax teams should take the following steps:

1. Determine applicability: Confirm whether your group exceeds the €750 million revenue threshold and identify all constituent entities.
2. Gather data: Collect financial statements, tax returns, and deferred tax calculations for all entities across all jurisdictions for the relevant period.
3. Calculate effective tax rates: Use GloBE-compliant software or work with advisors to compute jurisdictional ETRs and any top-up tax due.
4. Set up payment processes: Ensure your finance team has the correct HMRC bank details and reference number format ready before the deadline.
5. Monitor legal developments: The UK's implementation is still evolving, and other jurisdictions (e.g., EU member states, Australia, Canada) have their own timelines and rules that may affect your group's overall tax position.
6. Integrate compliance tools: Use a multi-domain compliance platform to track Pillar 2 obligations alongside other regulatory requirements such as e-invoicing, ESG reporting, and AI governance.

Contrast with Other Jurisdictions

The UK is one of the first major economies to implement Pillar 2, but other jurisdictions are following suit with varying timelines:

• EU: The Minimum Tax Directive (2022/2523) requires member states to implement Pillar 2 for fiscal years starting on or after 31 December 2023. Most EU countries have enacted legislation, with some (e.g., Germany, France) already requiring filings and payments.
• Australia: Enacted legislation effective from 1 January 2024, with a 15-month payment deadline after year-end.
• Canada: Implemented a Domestic Minimum Top-up Tax (DMTT) effective for fiscal years beginning after 31 December 2023, with a similar 18-month payment window.
• Japan: Enacted Pillar 2 rules effective from 1 April 2024, with filing and payment due within 18 months of year-end.
• United States: The US has not yet adopted Pillar 2, but its existing GILTI and BEAT rules provide a similar minimum tax. However, the US is considered a non-conforming jurisdiction, which may expose US-parented groups to top-up taxes in other countries.

Multinational groups must comply with each jurisdiction's specific rules, deadlines, and payment procedures, making centralized compliance tracking essential.

Key Takeaways

• UK Pillar 2 rules apply to MNEs with €750M+ revenue, requiring DTT and MTT payments where effective tax rates fall below 15%.
• Payment deadlines depend on accounting period end dates, generally 18 months after period end or by 30 June 2026, whichever is later.
• Payments must include a 15-character reference starting with 'X' and be made via HMRC's specified bank accounts.
• Late payments will incur interest; mark deadlines carefully.
• Tax teams should invest in GloBE-compliant calculation software and integrate Pillar 2 tracking into their broader compliance framework.
• Platforms like AIGovHub can help organizations manage multi-jurisdictional tax compliance alongside other regulatory domains, providing a centralized dashboard for deadlines, data collection, and reporting.

Next Steps for Your Compliance Journey

Pillar 2 compliance is not just a tax issue—it intersects with data management, financial reporting, and cross-border regulatory strategy. To help you stay on top of these requirements, AIGovHub offers a comprehensive compliance toolkit that includes regulatory alerts, interactive calculators, and vendor assessments across tax, AI governance, cybersecurity, and more.

Download our free Pillar 2 Compliance Checklist to ensure your team has covered all the essential steps, from data gathering to payment procedures. Get the checklist here and start preparing for a smooth compliance process.

This content is for informational purposes only and does not constitute legal advice. Organizations should consult with qualified tax professionals for advice specific to their situation.