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As part of the March 2020 Spring Budget, Chancellor Rishi Sunak announced a new requirement on large businesses to notify HMRC of uncertain tax treatments taken. The requirement was announced as an attempt to plug an estimated £4.9m tax gap that the Government perceive to have arisen as a result of differing legal positions taken by large businesses and HMRC in respect of tax due.
Following two HMRC consultations (responses to the second of which were published in March 2021), the proposed requirement has now been set out in detail with the publication of the draft clauses to Finance Bill 2021-22.
The draft provisions confirm that large businesses will be required to notify HMRC where they have adopted a UTT in respect of corporation tax, VAT and income tax (including PAYE) from 1 April 2022.
Large businesses for these purposes will be modelled on the Senior Accounting Officer (SAO) regime. This means that UK companies and groups with £200m UK turnover and/or £2bn UK gross balance sheets in the previous financial year will fall within the regime. Where there is a group of companies, the thresholds are tested against the aggregate position of all entities in the scope of UK tax.
The draft legislation includes a level of tax threshold below which there is no requirement to make a disclosure. The threshold has been set at £5m at this stage but the Treasury will have the power to amend that amount by regulations.
The new legislation is predicted to apply to only 2,300 business. As at June 2021, HMRC consider there to only be that many UK businesses considered to be large with a UTT of £5m or above.
Where the new legislation is considered to apply, the draft legislation sets out three triggers for disclosure, only one of which needs to be met. The triggers are as follows:
- a provision has been made in the accounts of the business to reflect tax uncertainty in accordance with generally accepted accounting practice;
- the tax position taken is contrary to the known position of HMRC, which includes publicly available material and statements made to that specific business; or
- there is a “substantial possibility” that a tribunal or court would disagree with the treatment applied.
As it stands, the notification is expected to be a single, annual process with the same submission deadlines as the Senior Accounting Officer (SAO) rules i.e. 6 months or 9 months after the year end, aligned with the statutory accounts filing deadline.
The details that a business must provide in its notification also currently align with the SAO rules requiring a concise description of the technical issue and an indication of the tax at stake. Non-compliance will have similar penalties to the SAO regime i.e. the draft provisions set out a penalty of £5,000 for failing to notify with escalating penalties for repeated failures. Where a Customer Compliance Manager has been assigned to a business or group (which is likely to be the case) the Government are expecting a dialogue to be held such that non-compliance only occurs in the most extreme cases
Given that the legislation as it stands will apply to returns to be submitted on or after 1 April 2022, the notification requirement could potentially apply to transactions and treatments arising in the current period. It is therefore important that, if you are a large business and you have not already done so, you should take steps to consider the draft provision and prepare for the introduction of these rules.
How can we help?
Our team can guide you through the intricacies of the new legislation, explain how the new provisions will work in detail, and help you prepare for their introduction from 1 April 2022.