HMRC Guidelines for Compliance (GfCs)

What are GfCs?

As part of its efforts to close the ‘tax gap’ between the tax that should theoretically be collected and what HMRC actually collects, HMRC is providing better guidance for taxpayers on meeting their tax obligations. As a result, HMRC has started to publish guidelines for compliance (GfCs) on different areas of tax.

Naturally, the GfCs focus on areas of tax where HMRC sees more errors in tax returns and HMRC says the objective is to "make our view clearer and to share what we see as good practice in areas we know inaccuracies occur".
 

Why GfCs matter

Each GfC sets out HMRC's view of what processes a business or individual should go through to collect, record, check and disclose tax data on their tax returns and other tax filings – it is HMRC’s view of best practice for taxpayer compliance. While these guidelines are designed to help taxpayers, they are also a helpful benchmark against which HMRC officers can assess how well a taxpayer complies with their tax obligations.

The GfCs have no legislative authority and you can fully comply with your tax obligations without following them. However, if HMRC discovers errors or mistakes in your tax compliance and you cannot evidence that you considered and followed the relevant GfC, HMRC is more likely to be able to argue that you were ‘careless’ in dealing with your own or your business’s tax affairs – this can lead to higher tax-geared penalties when the error is put right.
 

 

Identifying risks

Even where your tax compliance hasn't gone right there are still some positives from HMRC setting out what it regards as best practice. For example, if HMRC does query your tax return on a topic covered by a GfC, we now have a published standard setting out what HMRC expects, so it is easier to identify where you are at risk and what HMRC expects you to have done. But it’s still important to remember that GfCs sit alongside other HMRC guidance (e.g. its manuals), and the legislation and case law – the GfCs do not replace them.
 

GfC 13 – the most important GfC

GfC 13 is arguably the single most important of the many GfCs HMRC has published. GfC 13 covers how to make sure your tax returns and other filings to HMRC are 'correct and complete' and sets out what HMRC sees as the 'best efforts' a 'prudent and reasonable person would make’ to achieve that.

If you can demonstrate that you have made those 'best efforts', then HMRC may be less able to penalise you or take action under other compliance legislation such as the senior accounting officer rules for large companies.

The guideline sets out the extensive steps HMRC expects taxpayers to go through to achieve certainty about the correctness of their tax filings – including consulting HMRC guidance, taking expert professional advice and applying for clearances from HMRC where possible. Naturally, the first step is to ensure that the underlying factual information collated is complete and correct, minimising the use of assumptions: accurate data will always form the foundation of your tax position.

However, GfC13 does recognise that in some situations it may not be possible to be certain about your tax filings because:

• The law on a particular issue is uncertain or there is no relevant law, for instance the initial uncertainty over how to treat some crypto assets
• There is more than one reasonable interpretation of the law and, in HMRC's words
  • "You are considering applying a novel interpretation of the law, including after taking professional advice"
  • "The law is finely balanced between reasonable interpretations, with no clear position most likely to be found correct"

 

GfC 13 states that HMRC expects taxpayers to decide what to file in their returns on the basis that the approach taken would be the one most likely to be upheld if challenged in the tax tribunal or higher courts, taking into account all relevant facts. HMRC says that just believing a position is arguable is not enough and also that tax returns should not be filed based on an improbable interpretation of the law: doing so may result in 'deliberate behaviour' penalties and extended time for HMRC to be able to raise a 'discovery' assessment. GfC 13 also recommends that you notify HMRC of the details of the novel approach you have taken via a 'white space' disclosure on the tax return/computation or via a separate disclosure to HMRC.

Of course, for larger companies, where the tax at stake because of the uncertainty is over £5m, taxpayers already have a duty to notify HMRC about the uncertain tax treatment (UTT) in relation to VAT, CT and PAYE where qualifying criteria are met. HMRC is consulting on extending these UTT rules to other taxes and to individuals and trusts as well as adding an additional notification trigger. In addition, large businesses that are subject to HMRC's business risk review+ framework (BRR+) are expected to demonstrate how they comply with the UTT requirements, and indeed to support a low risk rating, large businesses are required to demonstrate that “any significant uncertainties or irregularities identified by the customer are communicated to HMRC promptly."

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