Notification of uncertain tax treatment – where are we now?
By Susan Cattell, Head of Tax Technical Policy
11 January 2022
Susan Cattell outlines recent developments around the requirement to notify uncertain tax treatments; ICAS met with HMRC in December to discuss preparations for implementation.
Notification of uncertain tax treatment by large businesses – a flawed consultation process
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. The measure illustrates the importance of following the full consultation process set out in the Tax Consultation Framework to improve the likelihood of a satisfactory outcome. In the case of the UTT measure, Stage 1 of the consultation process – setting out objectives and identifying options – was omitted. As a result, other options never seem to have been properly considered by HMRC, leading to poorly targeted legislation that will impose administrative burdens on compliant large companies which are already open and transparent in their dealings with HMRC.
ICAS has responded to both the consultations on this measure. We welcome the improvements made to the original proposals, including a reduction in the taxes within scope and improvements to the timing of notifications. However, significant issues arose at a late stage from a proposed third trigger, details of which were only published in draft legislation after the second consultation. We also commented on this draft legislation and draft HMRC guidance, and gave evidence to an inquiry conducted by a House of Lords committee. We were pleased that the final report of this committee picked up a number of issues raised in our written and oral evidence and we hope that the committee’s recommendations will be adopted.
Autumn Budget 2021 and the Finance Bill
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 – corporation tax, income tax (including PAYE) 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.
Members working for large businesses will therefore need to consider how to deal with the requirement to notify these uncertain tax treatments to HMRC.
The legislation is in the Finance Bill which is currently making its way through Parliament – the government has introduced some amendments, including tweaks to the deadlines for VAT and PAYE notifications relating to the provisions trigger.
The third trigger
Unfortunately, the highly subjective and unclear third trigger (where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects) has not been dropped completely. The government announced that it was committed to further consideration of this trigger, so we expect further engagement with HMRC in 2022.
ICAS meeting with HMRC
Members of the ICAS Indirect Tax and International and Large Business Taxation Committees held a constructive meeting with HMRC in December to discuss preparations for implementation of the notification requirement in April. It is important that HMRC publishes updated guidance (reflecting feedback provided on the draft) as soon as possible in 2022, to assist businesses with their preparation.
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.