On 20 July 2021 the UK government published a policy paper, together with draft legislation, on the notification of uncertain tax treatment by large businesses. This would require large businesses to notify HMRC when the tax treatment of an item is not certain, as defined by notification criteria set out in the legislation. This would enable HMRC to identify the uncertain tax treatment and initiate discussions with the taxpayer on the issues at an early stage. The general aim would be to reduce the part of the tax gap that is due to differences in legal interpretation by the taxpayer and HMRC.
Large businesses are defined for this purpose as those with a turnover above GBP 200 million per year; and a balance sheet total above GBP 2 billion.
An original consultation document was published on 19 March 2020 setting out the general framework for the proposed measures and asking for input on implementation. A second consultation was held between 23 March 2021 and 1 June 2021 and the responses from interested parties have been published.
The legislation is to be included in the Finance Bill 2021/22 and the measures would be effective from 1 April 2022. The legislation defines a large business for this purpose and defines what is uncertain tax treatment. There would be a threshold of GBP 5 million below which uncertain tax treatment does not need to be notified.
The measures would apply to income tax (of partnerships), corporation tax and VAT.
Penalties
A GBP 5,000 penalty would be imposed failure to notify an uncertain tax treatment. There would be provisions for appeal and for providing a reasonable excuse. In the case of repeated failure to notify uncertain tax treatments in more than one period the penalties for repeated failure would increase.
Definition of an uncertain amount
An amount brought into account by a company or partnership is an “uncertain amount” if:
- provision has been recognised in the accounts of the company or partnership, in accordance with generally accepted accounting practice, reflecting the probability that a different tax treatment will be applied to the transaction.
- the tax treatment relies (wholly or partly) on an interpretation or application of the law that is not in line with how it is known that HMRC would interpret or apply the law.
- if it is reasonable to conclude that, if a tribunal or court were to consider the tax treatment applied, there is a substantial possibility that the treatment would be found to be incorrect in one or more material respects (and for this purpose it is immaterial whether HMRC would be likely to challenge the amount or its tax treatment).
HMRC’s position on a matter is taken to be “known” by a company or partnership if it is apparent from guidance, statements or other publicly available HMRC material, or from dealings with HMRC by the company or partnership (whether or not they concern the amount or transaction in question).
