Uncertain tax positions: 2022 delay for UK notification regime

Out-Law News | 16 Nov 2020 | 11:16 am | 3 min. read

Proposals from the UK government to require large businesses to notify HM Revenue & Customs (HMRC) where they have adopted an uncertain tax treatment have been delayed until April 2022, a government minister has confirmed.

Financial secretary to the Treasury Jesse Norman announced the delay in a written ministerial statement. He said the deferral will allow more time to get the policy and legislation right following a recent consultation on the issue, including through further engagement with stakeholders, and will give affected businesses more time to prepare for the change.

Jason Collins, a tax expert at Pinsent Masons, the law firm behind Out-Law, said: "Postponing the introduction of this new regime suggests that HMRC is having a major rethink about the method, if not the object of this provision. This is welcome as the rationale for the new regime was not clearly articulated by the government and introducing the rules as proposed would have imposed a significant compliance burden on large businesses with potentially minimal benefit for HMRC."

The proposals were set out in a consultation document issued in March and were originally due to apply to tax returns filed after April 2021. The government proposed that a new obligation to notify would apply where a large business believed that HMRC may not agree with its interpretation of tax legislation, case law, or guidance. 

"The fact that businesses would have to assess whether HMRC may agree with their interpretation of the law was one of the most problematic aspects of the proposals. In many situations it is not clear what HMRC's view would be," Collins said.

In October the House of Lords Economic Affairs Committee's Finance Bill Sub-Committee questioned a number of people, including representatives of HMRC, as part of its inquiry into provisions proposed for the next Finance Bill. The transcript of the hearing has not yet been published, but the Chartered Institute of Taxation reported that, following comments made by Malcolm Gammie QC about the uncertain tax position proposals, Paul Riley, HMRC's director of tax administration, was asked about how HMRC would respond to criticism of the measure.

Riley indicated, according to the Chartered Institute of Taxation, that HMRC was rethinking the proposal: "On reflection, we accept that asking taxpayers to notify on the basis of an interpretation with which HMRC may not agree, as we proposed in the consultation document, is not the right test to apply in the legislation. If we are creating a new obligation that is backed up by a sanction, as this one would be, we need to make sure that those who are affected have a really clear understanding of the obligation on them. We accept that the test we proposed is probably too subjective and difficult for businesses to assess. We are looking at ways to make the definition more objective and more straightforward to comply with. We are keen to ensure that it is very clear what triggers an obligation to notify a tax treatment, while minimising the administrative impact on businesses."

Riley also said that HMRC wanted to make it clear in the legislation that the measure was not intended to create new obligations for businesses that are already open and transparent with HMRC, according to the report. He said HMRC was also considering points raised by those responding to the consultation on the question of materiality, any threshold for notification, whether penalties should be imposed on individuals as well as whether the measure is trying to cover too many different taxes.

The consultation proposed that the new regime would apply to corporation tax, income tax – including PAYE – VAT, excise and customs duties, insurance premium tax, stamp duty land tax, stamp duty reserve tax, bank levy and petroleum revenue tax. It proposed a £1 million threshold so that uncertain tax treatments which, individually or combined to a maximum of less than £1m in the tax outcome, would not be notifiable.

It was proposed in the consultation document that the notification process would be similar to that used by the senior accounting officer (SAO) regime, with notification six or nine months after the end of the accounting period and penalties for failing to comply possibly being incurred by a named individual and not just by the business.

"We will have to wait for publication of a response to the consultation document and further draft legislation, almost certainly next year now, to see exactly what changes HMRC is proposing," Collins said. "It is encouraging that the government appears to have listened to those responding to the consultation and that large businesses will not have to cope with these new rules at a time when they are having to deal with the significant challenges of the coronavirus pandemic."