Out-Law / Your Daily Need-To-Know

Notification of uncertain UK tax treatment by large businesses

Out-Law Guide | 30 Mar 2021 | 3:18 pm | 7 min. read

Large businesses will be required to notify HM Revenue and Customs (HMRC) where they have adopted an uncertain tax treatment from 1 April 2022, if proposed new rules become law.

The new rules are being introduced to make sure that HMRC is aware at an earlier stage if a large business has adopted a treatment that is contrary to HMRC's known position.

HMRC estimates that £4.9 billion of the estimated £31bn UK 'tax gap' is attributable to legal interpretation, most of which involves disputes with large businesses. The tax gap is the difference between the amount of tax that HMRC believes should be paid and what is actually paid. Legal interpretation is where HMRC and the taxpayer disagree on the meaning of the law.

The government first consulted on the new rules, intended to apply where a business believed that HMRC may not agree with its interpretation of tax legislation, case law or guidance, in March 2020. There was considerable criticism in response that this definition was too subjective, because it required a business to decide whether a tax position was one that HMRC may challenge or was likely to challenge. In November 2020, the government announced that it would delay the introduction of the new rules from April 2021 to April 2022 in order to reconsider the proposals.

A second consultation, aimed at addressing these concerns by making the test for 'uncertain tax treatment' less subjective, was issued in March 2021. The proposed changes include setting out a set of 'triggers' in the legislation, including where the treatment is contrary to HMRC's known position or the underlying transaction is novel. The consultation closes on 1 June 2021.

This guide explains the proposals set out in the second consultation document, which could change before the new rules become law.

Affected businesses

The requirement will only apply to large businesses, including partnerships and LLPs.

A large business is one with either, or both, a turnover above £200 million and a balance sheet total over £2bn. This includes all businesses handled by HMRC's large business directorate as well as the larger groups in its mid-sized business directorate.

Collective investment schemes will be excluded from the new regime.

Definition of an uncertain tax treatment

The notification requirement will apply in relation to an uncertain tax treatment: that is, where there is more than one way to interpret or apply tax legislation in relation to a transaction.

It is proposed that the notification requirement will arise on one of the following 'triggers':

  • the tax treatment results from an interpretation that is different from HMRC's known position. This would capture tax treatments that are not consistent with HMRC's guidance or other material in the public domain or a position that is inconsistent with HMRC's view, as established in dealings between the business and HMRC
  • the tax treatment was arrived at other than in accordance with known and established industry practice. This trigger would only be met where the industry-wide approach has been published by either HMRC or a representative body
  • the transaction is treated in a different way from the way in which an equivalent transaction was treated in a previous return and the difference is not the result of a change in legislation or case law or a change in approach to accord with HMRC's known position
  • there is a new or novel product, transaction or business structure such that the tax treatment cannot reasonably be regarded as certain. An example given by HMRC is whether a new food item is subject to VAT or not
  • a provision has generally been recognised in the accounts of the company or partnership, in accordance with Generally Accepted Accounting Practice (GAAP), to reflect the probability that a different tax treatment will be applied to the transaction
  • the arrangement results in either: a deduction for tax purposes greater than the amount incurred by the business; or income received for which an equivalent amount is not reflected for tax purposes – unless HMRC is known to accept this treatment
  • professional advice that is not protected by legal professional privilege has been obtained which is contradictory, in terms of tax treatment, to other professional advice the business has received, or which the business has not followed for the purpose of determining the correct tax treatment of a given transaction.

    The business will be required to make a decision about whether a tax treatment is uncertain at the time it is required to submit a notification. If a tax treatment becomes uncertain after that date – perhaps due to changes in case law – there is no requirement to revisit that year or accounting period. However, if the tax treatment is ongoing, then a notification may be required in the next year or period.

Taxes covered

The only taxes within the scope of the requirement to notify will be corporation tax, income tax (including PAYE) and VAT.

Proposals to include excise and customs duties, insurance premium tax, stamp duty land tax, stamp duty reserve tax, bank levy and petroleum revenue tax have been dropped.


Anything disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, the DOTAS VAT rules or the mandatory disclosure of cross-border arrangements (DAC 6) rules would not be notifiable under the new regime.

The new regime is designed to target businesses which are not open in their relationship with HMRC. The latest consultation document acknowledges that many large businesses approach HMRC for clearance and agreement in advance of adopting an uncertain treatment. Businesses that are already discussing any uncertainties with HMRC will not be required to notify again under the new regime, as long as they are giving HMRC the same level of detail as required under the notification regime.

The latest consultation document states that banks that are signatories to the banking code of conduct will not be required to notify uncertain tax treatments that they discuss with HMRC under the code. However, the response to the previous consultation said that there would not be an explicit exclusion in the legislation for banking code signatories.


A tax treatment will only be uncertain if it results in a difference of more than £5m between the taxpayer's calculation of their tax liability and HMRC's calculation of their tax liability.

It is proposed that the same or similar products, or the same or similar transactions, will be amalgamated when calculating whether the threshold is exceeded.

The original consultation proposed a £1m threshold. It also asked whether the threshold should be based on an individual materiality threshold for each business. The government has concerns about this approach but says it will explore it further.

Notification and penalties

The previous consultation proposed that the notification should be a single, annual process covering all the relevant taxes, due at the same time as the senior accounting officer (SAO) certificate.

The government is now proposing that there be a separate annual notification for each of the covered taxes. For corporation tax, this would be due when the return is due to be filed. For VAT and other non-annual returns, the notification would be due when the last return for the financial year in question is due to be filed.

The government is also proposing a group notification option in respect of VAT.

There will be a £5,000 penalty for failing to report. This will be appealable, and there will be a 'reasonable excuse' defence.

For companies, the penalty will only be imposed on the company and not on individual employees. The previous consultation suggested charging penalties on a nominated individual, in a similar way to the SAO regime.

The government intends to confirm the information to be provided with a notification in guidance. It is likely to include:

  • a concise description of the transaction;
  • the nature of the uncertainty;
  • the periods affected by the uncertainty;
  • an indication of the amount of tax relating to the uncertainty; and
  • the date of the transaction or event giving rise to the uncertainty.

Second consultation: areas for further consideration

The new consultation identifies a few areas in which the government is considering its position further.

A number of those responding to the first consultation were concerned that applying the regime to transfer pricing could be burdensome. The government is proposing to address these concerns by excluding uncertain matters relating to the pricing of related party transactions from some of the triggers. It is asking for views on which triggers should apply to transfer pricing and which should not.

Some previous respondents suggested that businesses with a low risk rating under HMRC's business risk review (BRR+) process could be excluded from the requirement to notify. The government sees challenges with this as there is no right of appeal against a BRR+ risk rating, and only businesses dealt with by HMRC's large business directorate are within the regime. However, the government has said that it will explore this further, including whether an objective alternative could be used to exempt low-risk businesses.

Impact on discovery assessments

Some of those responding to the first consultation suggested that HMRC's ability to issue discovery assessments would be affected where an uncertain tax treatment has been notified. HMRC can issue a discover assessment if either the potential loss of tax was due to careless or deliberate behaviour by the taxpayer or their agent; or at the time when an HMRC officer ceased to be entitled to open an enquiry into the return or issued a closure notice in respect of an existing enquiry, the officer could not reasonably have been expected, on the basis of the information made available at that time, to be aware of the loss of tax.

In its response, the government said that where there is no careless or deliberate behaviour in relation to an inaccuracy, and the notification was delivered on time and containing sufficient information to make HMRC aware of the actual loss of tax, there would be limited circumstances where a discovery assessment could be made.