ICAS comments on updated HMRC guidance on uncertain tax treatments
By Susan Cattell, Head of Tax Technical Policy
28 February 2022
Susan Cattell outlines the ICAS response to HMRC’s technical consultation on its updated draft guidance for the requirement to notify uncertain tax treatments.
Notification of uncertain tax treatment by large businesses is going ahead from April 2022
Businesses affected by the requirement to notify uncertain tax treatments (UTT) to HMRC are those with either, or both, a turnover above £200m per annum and a balance sheet over £2bn. The requirement affects all these large businesses and has been the subject of a lengthy development process. ICAS responded to both the formal consultations and commented on the draft legislation and the first draft of the HMRC guidance.
The government announced in the autumn Budget 2021 that implementation of the requirement to notify will go ahead, with effect for returns of large businesses due to be filed on or after 1 April 2022. However, only two of the proposed three triggers will be included at this stage. A tax treatment (for specified taxes, including CT and VAT) will therefore need to be notified where it meets one of two criteria:
- That a provision has been made in the accounts for the uncertainty.
- That the tax treatment applied is not in accordance with HMRC’s known position.
Updated HMRC draft guidance
Members working for large businesses will now be considering how to deal with the requirement to notify these uncertain tax treatments to HMRC; it would be helpful for them to be able to consult HMRC’s guidance, in order to understand the approach HMRC will be adopting. ICAS recently responded to an HMRC technical consultation on its updated draft UTT guidance.
There have been some improvements to the guidance since the publication of the first draft. However, there remain some issues, including:
Provisions
The draft guidance on the first trigger states that ‘The criterion applies irrespective of where the provision is presented in the accounts.’ However, clarification is needed of how this is to be interpreted where the ‘provision’ does not have an impact on either the P&L or the balance sheet. Clarification is also required for provisions recognised at group level, which is common, particularly if more than one group company may experience uncertainty in respect of the tax treatment of the same issue. It seems likely that the intention is that a provision made in a group’s consolidated accounts rather than the individual accounts of the qualifying company, should trigger a notification.
HMRC’s known position
It is helpful that the guidance on the second trigger (HMRC’s known position) has been improved in some respects. However, the guidance and legislation still fall short of providing certainty and a level playing field for all businesses seeking to ascertain HMRC’s known position. The listing of the guidance and other material businesses are expected to consult has been expanded but still needs to be more explicit and should also be exhaustive.
Interaction between UTT notification and Business Risk Reviews
ICAS was concerned to see the comments in the draft guidance about the interaction between UTT notifications and Business Risk Reviews. In principle, making notifications should not have an adverse impact on risk ratings. The stated purpose behind the UTT requirement is to encourage businesses to engage with HMRC early and in real time to obtain exemption from notification. However, feedback we consistently receive from large businesses is that they want to engage with HMRC in real time to discuss uncertainties (or obtain clearances) but can find this difficult due to HMRC resource constraints. If large businesses feel that they have been unable to confirm that the exemption applies, and therefore notify, it would be inappropriate for this to adversely affect their risk rating.
The updated draft guidance does include a helpful explanation of HMRC’s view of the interaction between UTT notifications and the Senior Accounting Officer regime.
The general exemption
ICAS welcomes the explicit commitment in the guidance that HMRC will confirm when the general exemption has been met, where a business (or its agent) approaches HMRC, via the Customer Compliance Manager or the Mid-Size Business Customer Support Team to provide information and discuss an uncertain tax issue. We understand that HMRC will be giving guidance to its staff about the exemption and the need to ensure that large businesses know that they have provided sufficient information to qualify. Making this process work will be essential, but it is currently difficult to understand how HMRC intends to address the apparent underlying shortage of resources. It remains unclear exactly how the discussions will be documented and whether HMRC will be able to provide the documentation and confirmation in a reasonable timeframe.
Final version of the guidance
HMRC emailed respondents to the consultation on 28 February to thank them for their contributions, and to let them know that the final version of the guidance has now been published. HMRC noted that they had used the feedback to improve the quality of the guidance and believe it now offers further clarity on how the new regime will apply and will assist taxpayers in managing their obligations.
Meetings with HMRC
Members of the ICAS Indirect Tax and International and Large Business Taxation Committees attended some useful roundtable meetings with HMRC in February to discuss the reporting process.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by Members. We welcome Members’ input to inform our work – please email tax@icas.com to share your insights and feedback.