The UK budget announcements on 27 October 2021 included a new requirement for large businesses to notify HMRC when they take a tax position in their returns that is uncertain.
Legislation would be included in the Finance Bill defining a large business as one with turnover above GBP 200 million per annum and/or a balance sheet total over GBP 2 billion.
These large businesses would be required to notify HMRC if they have adopted an uncertain tax treatment and HMRC is not already aware of the treatment. An amount related to corporation tax, value added tax or income tax would be regarded as uncertain if a provision is made in the accounts for the uncertainty; or where the position taken by the business is contrary to HMRC’s known interpretation.
Notification would be required only if the tax advantage is more than a GBP 5 million threshold.
The legislation will provide guidance on the criteria that large businesses must take into consideration to determine whether a tax position they have taken is uncertain and should be notified. The legislation will set out the due date for the notification, which will be in line with due dates for other relevant returns.
An exemption from the requirement to notify HMRC would be given for situations where disclosure is already required under another legislative provision or where HMRC are already aware of the uncertain tax treatment.
A penalty would be imposed for failure to notify, with provisions for appeal and for reasonable excuse. The penalty would increase if there were repeated failures to notify in more than one period.
The notification requirement would improve HMRC’s ability to identify uncertain tax treatments by taxpayers that are not transparent in their approach. The notification would enable HMRC to engage in discussions on the uncertain tax treatment at an earlier stage.
The government will consider if another trigger for the notification may be included later, for situations where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects.