Out-Law / Your Daily Need-To-Know

Will big business need to report everything to UK tax authority?

Out-Law Analysis | 14 Jul 2020 | 2:15 pm | 7 min. read

The UK tax authority is proposing new measures which mean that large businesses would be required to report any uncertain tax positions they have taken.

The current UK system for filing taxes imposes a very binary requirement. A company has to take a position, and decide whether to file an amount as due as tax or not.

Many corporates will try to engage – formally or informally – with HM Revenue & Customs (HMRC) to resolve such uncertainties, either before or after filing. HMRC is, however, now consulting on making it a legal requirement for larger businesses to file an annual statement identifying any uncertain positions they have taken. This is to ensure that "HMRC is aware of all cases where a large business has adopted a treatment with which HMRC may disagree and accelerate the point at which discussions occur on uncertain tax treatment".

Legal interpretation as a problem for HMRC

HMRC’s estimate that £6.2 billion or 18% of the 'tax gap' – what HMRC should, but doesn’t, collect – is a question of 'legal interpretation'. This is defined as being where the taxpayer and HMRC’s views of the law and how it applies to the facts differ, but there is no 'avoidance'.

Although HMRC does not see legal interpretation as a behaviour of which it inherently disapproves, HMRC does note that taxpayers sometimes have to take positions due to 'genuine' uncertainty, whilst others take a position with the 'deliberate intention' of pushing the boundaries of the law to their advantage.

The consultation document notes that large businesses make up the majority of the legal interpretation gap. HMRC is therefore suggesting that the new measure will apply to groups with £200 million turnover and/or over £1 billion of assets, as is the case under the UK's Senior Accounting Officer (SAO) and Publication of Tax Strategy regimes, and, unlike the SAO regime, will apply to large partnerships as well as corporate groups.

Collins Jason

Jason Collins

Partner, Head of Litigation, Regulatory & Tax

HMRC notes that taxpayers sometimes have to take positions due to 'genuine' uncertainty, whilst others take a position with the 'deliberate intention' of pushing the boundaries of the law to their advantage.

The notification requirement will draw upon international accounting standards, with one main difference. Those accounting standards require a judgment to be made on whether it is probable that the company’s filing position will ultimately be proved correct; the notification requirement requires a judgment to be made merely on whether HMRC may – although the consultation document sometimes uses the language 'likely to' – take a different view.

IAS12 and IFRIC23

The accounting standard referred to is IAS12 Income Taxes (IAS12) as interpreted using International Financial Reporting Standards 23 (IFRIC23). IAS12 requires current and deferred tax assets and liabilities to be recognised and measured based on an evaluation of applicable tax laws. IFRIC23 was introduced for financial statements for periods beginning on or after 1 January 2019 to clarify how to apply IAS12 where there is uncertainty about how those laws apply to a given situation.

IFRIC23 requires the company to approach the uncertainty by first making the assumption that the tax authority will "examine amounts it has a right to examine and have full knowledge of all related information when making those examinations". Put another way, the company cannot hope that the issue flies under the radar until it becomes time-barred.

The company must then assess whether it is 'probable' that a tax authority, or a court, will accept the company’s filing position. If yes, there is nothing to provide for. If no, the company must make the necessary adjustments in its financial statements to reflect that probable outcome: for example, if the company has paid a disputed amount of tax and intends to appeal to a tribunal, if it takes the view that it is probably going to succeed, it has to show a tax asset – the probable refund. On the flip side, if it has filed on the basis that there is no tax liability, but it is probable that this position will ultimately be proved wrong, it must provide for that tax liability.

One might ask why a company might file on a basis, then conclude it is probably wrong? First, there might have been a change in circumstances, such as a change in practice by a tax authority or an adverse court of first instance decision in a similar case. However, there also may be cases where a company knows it is taking a robust but lawful filing position and decides, in discussion with its auditors, that it ought to provide for an adverse outcome.

It is precisely because of these issues that HMRC is consulting on a free-standing obligation to notify about uncertainty which is not dependent on the types of evaluation necessary for the purposes of taking a filing position or for producing financial statements.

Notification proposal

The proposed requirement to notify uncertainty will apply to tax returns filed after April 2021, and will cover all UK taxes which are the subject of the SAO regime – namely, the main taxes on income and transactions as well as customs and excise duties. It will not apply to some of the more narrow-focus indirect taxes, such as aggregates levy and landfill tax.

Controversially, it will only apply to tax positions greater than £1 million per financial year/accounting period.

An uncertain tax position will be defined in legislation but, as noted, will be based on the likelihood of HMRC challenge rather than the eventual winner. Formal guidance will detail generic classes of obligation, for example where the principle of the position is in dispute in the courts or contrary to HMRC guidance, or the position was the subject of an unsuccessful pre-transaction clearance.

HMRC guidance will also explain some common areas of dispute which need to be notified, such as whether a supply is taxable or VAT exempt, and questions around the capital/income divide and other 'boundary' issues. Other areas which spring to mind are disputes about residence and permanent establishments, where the company in question may not have filed a UK tax return at all.

HMRC predicts the measure will bring in £160 million over the next five years. This may be on the basis that, absent the notification, the positions might have slipped under the radar and become time-barred.


There will be a single annual notification process, timed to coincide with the annual SAO regime certification regime. As some of the covered taxes are not accounted for by reference to a company’s accounting period, those taxes will be swept up in the notification next taking place after the deadline for the tax return in question.

The notification must include a concise description of the tax issue and amount of tax at stake. Although the consultation document is silent on this point, it might be that the company is required to identify the particular statutory provisions in play, and in particular the contrary position that HMRC is judged as likely to take.


There will be an exemption from reporting where the notification regime overlaps other reporting regimes, such as Disclosure of Tax Avoidance Schemes (DOTAS) and the Directive on Administrative Co-operation (DAC 6).

There will also be no need to notify where the business is already in discussion with HMRC, for example because HMRC is already auditing the tax return and the issue has been identified already, or where HMRC agrees in writing before the notification deadline that it has sufficient information.

The notification requirement will be once only, in that if there is a change in circumstances after the notification has been made, for example a new court decision, it will not be necessary to revisit the notification. However, if the same tax position arises in a subsequent return it will be necessary to disclose the newly observed uncertainty in respect of that return at the next notification deadline.

The consultation also points out the logic that, although there will no formal exemption where a business has obtained pre-transaction clearance, there will be no uncertainty to disclose if all the material facts were provided in seeking the clearance and the transaction proceeded on the cleared basis.


The company will be required to nominate an individual personally responsible for notifying the uncertainties. This does not have to be the SAO. Failure to nominate will give rise to a penalty on the company. A failure to notify by the nominated person will give rise to a penalty against that individual. HMRC proposes relatively nominal amounts of £5,000 in each case per company.

Comparison with other countries

HMRC notes that the US and Australia already operate similar regimes. However, there are some differences.

The Australian system is based on materiality, which for large groups would not mean the £1mentry point proposed for the UK regime.

Likewise, the US system requires an entity to file an 'Uncertain Tax Position' (UTP) statement where it has made a reserve in its financial statements in accordance with the applicable standards, or it has not made a reserve because it intends to litigate and expects to prevail on the merits. However, it is not required to file the UTP statement if it did not reserve because applicable accounting standards allowed it to disregard the position as being "immaterial".

In any event, neither the US or Australian system is based on the likelihood of the tax authority countering the position rather than on looking at the overall merits or size of the position.

Is this welcome right now?

Many businesses will have the sort of relationship with HMRC that means they voluntarily bring uncertainties to HMRC’s attention, often using the 'real-time working' framework. However, we hear of many corporates that feel this framework is not working because HMRC is slow or reticent to conclude on whether to accept the proposed treatment. Some have questioned the merits of disclosing uncertainties to HMRC against that backdrop. It is possible that this new measure is being proposed by HMRC precisely because it has sensed this hardening of relations.

Needless to say, the measure has not been met with open arms by large businesses. The consultation period has now been extended to close on 27 August 2020, as businesses divert resources to deal with the impact of Covid-19.

This article was first published on Bloomberg Tax.