Notifying uncertain tax positions: UK plans detailed

The proposals were initially announced by UK chancellor Rishi Sunak in his Budget on 11 March, but further details have now been set out in a consultation document published by HMRC.

The new rule will apply where a business believes that HMRC may not agree with its interpretation of tax legislation, case law, or guidance. The consultation gives some examples. These include the adoption of a tax treatment which is under dispute in the courts, a treatment which is contrary to HMRC’s stated view, and a treatment where HMRC clearance was requested and was not given.

According to the consultation document, the proposal will cover cases where a business is making a judgement from a position of genuine uncertainty as well as those where the taxpayer "may be taking a position with the deliberate intention of pushing the boundaries of the law to their advantage".

It will cover the taxes which are currently within the scope of the senior accounting officer (SAO) regime. These are corporation tax, income tax – including PAYE, VAT, excise and customs duties, insurance premium tax, stamp duty land tax, stamp duty reserve tax, bank levy and petroleum revenue tax.

The proposed new measure will only apply to large businesses. These are businesses which have a turnover above £200 million and/or a balance sheet total over £2 billion.

The policy will draw on international accounting standard IFRIC23 'Uncertainty over Income Tax'. IFRIC23 requires an assessment of whether it is probable that a tax authority, including a court, would accept an uncertain tax treatment.

"The proposed measure goes further than the current accounting standard IFRIC23, which looks at probable final outcomes – i.e. who is more likely to be right, whereas this measure requires groups to alert HMRC merely where HMRC may take a different view – even if their view isn’t likely to prevail," said Jason Collins, a tax disputes expert at Pinsent Masons, the law firm behind Out-law.

There will be a £1m threshold so that uncertain tax treatments which, individually or combined amount to a maximum of less than £1m in the tax outcome, will not be notifiable.

The government is proposing that the notification process should be similar to that used by the SAO regime, with notification six or nine months after the end of the accounting period.

The SAO regime requires large UK corporates or corporate groups to certify that they have adequate accounting procedures to allow tax liabilities to be calculated accurately in all material respects. Large corporates are required to appoint an individual to be the SAO. This individual must give HMRC a certificate each financial year stating whether the company had appropriate tax accounting arrangements.

The SAO regime does not apply to large partnerships, but these would be covered by the new notification regime.

"Groups will be required to propose an individual responsible for making the notification," Jason Collins said. "The penalties for non-compliance are low – but, like the SAO regime, can be applied to that individual. However, if the group doesn’t propose an individual, only the group will be penalised. Will some groups take the view that that penalty is better than notifying uncertainty of a tax position?"

The government has proposed a penalty of £5,000 on large businesses that fail to notify HMRC with details of the person liable to notify. There would also be a penalty of £5,000 on the person liable to notify, or the entity, where they should have notified but failed to do so.

Views on a number of aspects of the design of the new regime are being requested by HMRC via its consultation. Responses should be sent by 27 May.

The government said it will publish its response to the consultation, along with draft clauses, in late summer 2020. It intends that legislation will be introduced in the 2020 to 2021 Finance Bill and the new measure will apply to returns filed after April 2021.