UK: Losses not deductible because related entities not interacting on a commercial basis (First-tier Tribunal decision)
Losses were not tax deductible because related domestic entities did not interact “on a commercial basis.”
The First-tier Tribunal held in Scheckter v HMRC [2026] UKFTT 1280 (TC) that losses were not tax deductible because they were generated by a trade not conducted “on a commercial basis.”
The taxpayer operated what was generally regarded as a single commercial undertaking, but with activities split across two legal entities (one primarily concerned with farming and the other primarily with meat processing and retail). Both entities were generating losses, but the tribunal accepted both the commerciality of the business as a whole and the genuine desire for each entity to make profits. Nonetheless, it held that losses incurred by one entity were not tax deductible because the entity did not interact with the other entity “on a commercial basis.”
KPMG observation
Although a wholly domestic group generally is not subject to transfer pricing rules, a robust and well-documented transfer pricing analysis may be the best defense to address concerns that related domestic entities are not interacting on a commercial basis.
Read an October 2026 report prepared by the KPMG member firm in the UK