Notification of Uncertain Tax Treatment – new HMRC Guidance
Posted on: February 2nd 2023 · read
Do you know about this new tax requirement for large businesses?
Following two public consultations in 2020 and 2021, the UK Government introduced a requirement for certain large businesses to notify HMRC when they take an uncertain tax position in a relevant return that is due to be filed on or after 1 April 2022. This requirement applies with respect to Corporation Tax, VAT, and Income Tax.
The Uncertain Tax Treatment (“UTT”) reporting requirement is aimed at reducing lost tax where a tax filing position taken by a business is different from HMRC’s known position on the matter. This is referred to as an ‘interpretation difference’ and requires the business to provide additional disclosure where it is taking a filing position, which applies an interpretation perceived as being different to an established HMRC position.
Which businesses are affected?
A UK business (which can include both companies and partnerships) should only fall within the UTT regime as a qualifying company or partnership if it meets either or both thresholds below, by reference to its previous financial year results. When considering a company’s size, its financial results should be aggregated with those of any other UK companies in the same corporate group as well as the UK attributable turnover and balance sheet totals of any non-UK resident group companies.
- Relevant UK turnover in excess of £200m; and / or,
- Relevant UK gross balance sheet total of more than £2bn.
A UK business which does not meet the above thresholds should not be treated as a qualifying company or partnership.
What constitutes a notifiable Uncertain Tax Treatment?
Where a qualifying company or partnership submits a corporation tax return, partnership return, PAYE return, or VAT return to HMRC which contains an ‘uncertain’ amount which gives rise to a tax advantage that exceeds a £5m de minimis threshold, it may be required to notify HMRC, where either or both of the following criteria are met:
- Tax provision criterion – where a provision is recognised in the accounts of a qualifying company or partnership, which reflects the probability that a different tax treatment will be applied to the transaction which has given rise to the amount. There must be a link between the provision and at least one entry (including an entry of nil) on a relevant tax return; and/or
- HMRC’s known position criterion – where it is known at the time of filing the relevant tax return, that the tax treatment applied in arriving at the amount relies (wholly or partly) on an interpretation or application of the law which contradicts HMRC’s known position.
The following exemptions on the requirement to notify HMRC may also potentially be available to a qualifying company or partnership:
- General exemption - where it is reasonable for the qualifying company or partnership to conclude that HMRC already have all, or substantially all, the information relating to an amount, that would have been included in the notification if it had been required to be given.
- Certain group transactions – A specific exemption from the requirement to notify an uncertain amount of corporation tax may apply where the amount relates to a transaction between the company and another member of the same corporate group and where the net effect of the transaction is that the tax advantages that would be obtained by the group does not exceed the £5m de minimis threshold.
Notification deadlines and penalties
The deadline for a qualifying company or partnership to notify HMRC of an uncertain amount will typically be the same as the filing deadline for the relevant tax return containing the uncertain amount.
The following penalties may apply where a company or partnership is required to make a notification, but fails to do so:
- £5,000 fixed penalty for a first failure to make a notification by the relevant deadline.
- £25,000 fixed penalty for a second failure (i.e., a failure to make a notification within three years of the company or partnership receiving a first failure penalty in respect of the same relevant tax).
- £50,000 fixed penalty for a third or further failure (i.e., a failure to make a notification within three years of the company or partnership receiving at least two fixed penalties in respect of the same tax).
How MHA can help you
These rules will further increase the tax compliance burden for large businesses, even where no notifications are required in a given financial year. Furthermore, given the significant tax thresholds involved, a failure to notify could lead to significant reputational damage.
The UTT regime applies to tax returns which were due to be filed on or after 1 April 2022, and as such there may a requirement to report transactions that are being carried out now.
Our experts have a wealth of experience in dealing with complex tax issues, as well as dealing with HMRC, and can advise on transactions as well as assess whether a report(s) should be made.
Find out more
For more information, please contact us, or alternatively, you can email the MHA Corporate Tax team, who will be happy to assist: