Article:

Uncertain Tax Treatments - what you need to know

18 November 2021

The Government’s long trailed policy on uncertain tax treatments (“UTTs”) has now been published in Finance Bill 21-22, allowing taxpayers to see the detail on a high-profile new tool in HMRC’s arsenal. As first mentioned in the March 2019 Budget, the new law requires taxpayers to notify HMRC when corporation tax, income tax or VAT treatments are adopted that are – under two legislative definitions – “uncertain”.

The stated aim of the Government is to reduce the size of the tax gap that is down to differing legal interpretation, by identifying and potentially challenging such interpretations at an earlier stage. In order for a position taken to be notifiable, the following conditions must be met:

  1. The taxpayer (or its group) must exceed £200m annual turnover or have a balance sheet in excess of £2bn.
  2. A relevant tax return (company tax return, partnership return, PAYE return or VAT return) must have been submitted in which applying an tax treatment gave rise to £5m or more in tax advantage
  3. The tax treatment must have been uncertain, meaning either:
    • It resulted in a provision being made in the taxpayer’s accounts
    • It arises because of a tax treatment which is not in accordance with HMRC’s published position, or HMRC’s dealings with the individual taxpayer

As new and arguably, novel, legislation, there are significant additional complexities and exceptions behind these conditions which we would be happy to discuss in detail according to your circumstances.

There are a few exemptions which remove the need to notify HMRC. In particular, Not for Profit (‘NFP’) organisations will need to consider:

  • What constitutes turnover for the purpose of this policy;
  • Which entities come into consideration when deciding whether the annual turnover/balance sheet threshold has been met. For example, whilst registered societies under the Co-operative and Community Benefit Societies Act 2014 are exempt from the notification requirements, that does not extend to other group companies.

Corporation tax management of NFP entities is complicated and although many organisations benefit from subsidiaries donating taxable profits to mitigate tax liabilities year on year it may not be enough to rely solely on the benefit of this. NFP entities should consider whether the tax treatment of any such transactions does bring them within the scope of notification.

Notification

Once an uncertain tax treatment requiring notification has been identified, the deadline for notification (the form of which will be specified by HMRC in a notice) varies between the taxes.

For corporation tax, notification should be made on or before the filing date for the relevant return, or if, later the date the accounts must be submitted and notification of a treatment on a partnership return must be made before the date the return needs to be filed.

For VAT and PAYE returns, notification needs to be made on or before the date on which the last PAYE or VAT return for the taxpayer’s financial year needs to be made.

Tax Strategy and internal processes

Taxpayers who fall within the size conditions will need to ensure that appropriate internal policies are put into place for returns made from 1 April 2022 to catch and notify treatments that fall within the new legislation – this will include new tax decisions to be made as well as identifying ‘business as usual’ treatments that could require notification. The penalties for failure to do so start at £5,000 before escalating to £25,000 and £50,000 for repeated failures to notify.

As well as the operational side this new policy also needs to be considered alongside the Senior Accounting Officer and Tax Strategy requirements to ensure that all three are aligned to the desired tax profile of the business, and that interaction between the requirements is one we expect HMRC to take a keen interest in. 

Read the updated legislation (Finance Bill 2021-22).