UK and International Tax news
Uncertain Tax Treatments By Large Businesses
Friday 6th August 2021
HMRC has issued a summary of responses to the latest consultation on the proposed notification of uncertain tax treatments by large businesses.
In the 2020 Spring Budget, the government announced that large businesses would need to notify HMRC of uncertain tax treatments, being those contrary to HMRCs known position or where there is uncertainty about how a transaction should be treated for tax purposes.
In March 2020, a consultation was launched to seek views on how the regime should operate. In November 2020, the government announced that HMRC would consult further on the policy details of the proposal, and implementation would be deferred for twelve months and would apply to tax returns due on or after 1st April 2022.
A second consultation was launched in March 2021 that reflected the responses received to the previous consultation. Key changes to the proposal included:
- changing the definition of “uncertain tax treatment” to a series of more objective triggers
- increasing the threshold above which uncertain tax treatments must be notified, from £1m to £5m
- reducing the taxes in scope of the regime to Corporation Tax, VAT, PAYE and Income Tax Self-Assessment
- clarifying exclusions from the requirement to notify
The policy objective of the proposal is to reduce the legal interpretation portion of the tax gap by requiring large businesses to provide HMRC with timely and accurate information concerning a tax treatment that is uncertain, for example where HMRC’s interpretation is different from the one used. This will enable HMRC to identify uncertain tax treatments earlier, and will level the playing field between open and transparent businesses that already tell HMRC about uncertainties and businesses that do not. The tax gap presents a significant risk to the Exchequer, with the legal interpretation tax gap estimated to be £4.9bn.
The latest consultation sought views on the proposed amended notification regime, in particular from large businesses and agents representing large businesses, to assess the changes proposed and to understand the potential impacts these changes will have on businesses.
The government has now considered the responses in the further development of the policy and has made the following changes to address the concerns raised:
- reduced the number of tests, from seven to three, that will trigger a requirement to notify. This should help to reduce the administrative burden, by reducing the number of checks large businesses will have to make to assure themselves that they are compliant with the new regime
- refined two of the triggers proposed in the second consultation: where a provision has been made for a different tax treatment, and where the business has adopted a different treatment from HMRC’s known interpretation
- proposing a new trigger to deal with uncertainties, including those over how the law applies to a set of facts. Businesses will be required to notify HMRC where there is a substantial possibility that a court or tribunal would disagree with the treatment adopted
- refined the penalty for failure to notify an uncertain tax treatment so that a larger penalty may be charged for repeated failures
Most respondents agreed:
- that the government needs to act to close the legal interpretation portion of the tax gap
- that the £5m threshold was appropriate for both direct and indirect taxes and preferable to a materiality threshold
- with the proposed rules to calculate the threshold
- that the Business Risk Review (BRR+) process was not appropriate as a basis to exclude low-risk businesses
- that a notification should be required for each tax in scope, rather than a single notification, and be required when the return is due
- that tax neutral inter-entity transactions should be excluded
- that the information required in a notification should be specified in guidance
- that responsibility for notifications in relation to a partnership should fall to the nominated partner
The government is to consult on draft clauses and provide draft guidance on how HMRC will operate the regime and what businesses will need to do.Contact Us