HMRC's draft guidance on notification of uncertain tax treatments
HMRC has issued its draft guidance on the proposed reporting regime.
On 20 July, the government published for consultation its draft clauses in respect of the proposed requirement for large businesses to notify HMRC of uncertain tax treatments. On 19 August, HMRC published its draft guidance on this new regime. HMRC has asked for comments on the draft guidance in the same timeframe as comments on the draft clauses, comments on which are due by 14 September. HMRC has expressed an aim that the guidance be in the best shape possible by the time the legislation is enacted.
As a reminder, the regime requires large businesses to notify HMRC of ‘uncertain amounts’ in respect of ‘relevant taxes’ subject to a threshold test and specific exemptions. ‘Relevant taxes’ include corporation tax, income tax (including PAYE) and VAT. A treatment gives rise to an ‘uncertain amount’ in relation to a relevant tax if it falls within one (or more) of three triggers.
In relation to trigger 2, which applies where the tax treatment adopted is not in accordance with HMRC’s ‘known’ position, the guidance includes an illustrative list of the types of documents that would indicate HMRC’s ‘known’ position (including statements of practice, and public notices as well as HMRC manuals) and those that do not (for example, advice provided in online HMRC forums). Stakeholders had suggested during the second consultation that, to increase certainty for businesses, HMRC should provide an exhaustive list of published documents which should be consulted for these purposes. However, the draft guidance makes it clear that the examples provided are illustrative only, and no exhaustive list of documents is available.
In respect of trigger 3, which applies where there is ‘substantial possibility’ that a tribunal or court would find the treatment to be incorrect, the guidance provides a list of factors which might indicate that this test had been met, including: situations where the decision over two treatments is ‘finely balanced’; where there is ‘genuine doubt over how the law should be interpreted’ or where ‘different advisors recommend different tax treatments’. However, there is no specific guidance on how ‘substantial possibility’ should be interpreted in this context. In the absence of specific guidance on this point, concerns may remain that this test is subjective and difficult to apply with certainty.
In respect of VAT, the guidance confirms that there is no intention that there should be a net off of input and output tax in determining the ‘tax advantage’ arising from a tax treatment; hence taxpayers should look at the input or output tax individually (rather than netting off). The guidance provides some examples of the aggregation of similar treatments in certain sectors (e.g. food and retail).
With regard to the notification process, the guidance clarifies that for a VAT group, the representative member will be responsible for making the notification. For all other taxes, each entity will be responsible for its own notification. The guidance lists the information which will need to be provided in a notification: this will include details of the trigger (or triggers) which apply, along with details of the transaction/issue, nature of the uncertainty, statutory references and the amount of tax advantage concerned. The form for making a notification will be available from 1 April 2022. For those businesses which need to make their first notification soon after 1 April 2022 (7 April being the first potential submission date of VAT returns when the regime is in force) this may leave limited time to deal with any teething problems which arise.
The government intends that the legislation will apply to returns submitted on or after 1 April 2022. Given this timeline, the notification requirement could potentially apply to transactions and treatments arising in the current period, and so it is important that, if they have not already done so, businesses begin to prepare for the application of these rules.
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HMRC's draft guidance on notification of uncertain tax treatments
HMRC has issued its draft guidance on the proposed reporting regime.
On 20 July, the government published for consultation its draft clauses in respect of the proposed requirement for large businesses to notify HMRC of uncertain tax treatments. On 19 August, HMRC published its draft guidance on this new regime. HMRC has asked for comments on the draft guidance in the same timeframe as comments on the draft clauses, comments on which are due by 14 September. HMRC has expressed an aim that the guidance be in the best shape possible by the time the legislation is enacted.
As a reminder, the regime requires large businesses to notify HMRC of ‘uncertain amounts’ in respect of ‘relevant taxes’ subject to a threshold test and specific exemptions. ‘Relevant taxes’ include corporation tax, income tax (including PAYE) and VAT. A treatment gives rise to an ‘uncertain amount’ in relation to a relevant tax if it falls within one (or more) of three triggers.
In relation to trigger 2, which applies where the tax treatment adopted is not in accordance with HMRC’s ‘known’ position, the guidance includes an illustrative list of the types of documents that would indicate HMRC’s ‘known’ position (including statements of practice, and public notices as well as HMRC manuals) and those that do not (for example, advice provided in online HMRC forums). Stakeholders had suggested during the second consultation that, to increase certainty for businesses, HMRC should provide an exhaustive list of published documents which should be consulted for these purposes. However, the draft guidance makes it clear that the examples provided are illustrative only, and no exhaustive list of documents is available.
In respect of trigger 3, which applies where there is ‘substantial possibility’ that a tribunal or court would find the treatment to be incorrect, the guidance provides a list of factors which might indicate that this test had been met, including: situations where the decision over two treatments is ‘finely balanced’; where there is ‘genuine doubt over how the law should be interpreted’ or where ‘different advisors recommend different tax treatments’. However, there is no specific guidance on how ‘substantial possibility’ should be interpreted in this context. In the absence of specific guidance on this point, concerns may remain that this test is subjective and difficult to apply with certainty.
In respect of VAT, the guidance confirms that there is no intention that there should be a net off of input and output tax in determining the ‘tax advantage’ arising from a tax treatment; hence taxpayers should look at the input or output tax individually (rather than netting off). The guidance provides some examples of the aggregation of similar treatments in certain sectors (e.g. food and retail).
With regard to the notification process, the guidance clarifies that for a VAT group, the representative member will be responsible for making the notification. For all other taxes, each entity will be responsible for its own notification. The guidance lists the information which will need to be provided in a notification: this will include details of the trigger (or triggers) which apply, along with details of the transaction/issue, nature of the uncertainty, statutory references and the amount of tax advantage concerned. The form for making a notification will be available from 1 April 2022. For those businesses which need to make their first notification soon after 1 April 2022 (7 April being the first potential submission date of VAT returns when the regime is in force) this may leave limited time to deal with any teething problems which arise.
The government intends that the legislation will apply to returns submitted on or after 1 April 2022. Given this timeline, the notification requirement could potentially apply to transactions and treatments arising in the current period, and so it is important that, if they have not already done so, businesses begin to prepare for the application of these rules.
