CIOT welcomes improvements to new business compliance obligation

From April 2022 large businesses will have to notify HMRC if they have adopted a tax treatment where the business believes that HMRC, or a tribunal or court, may not agree with their interpretation of the legislation, case law, or guidance. The proposal is that businesses must notify these ‘uncertain tax treatments’ to HMRC separately from their tax return.¹ HMRC claim this requirement will help to reduce the amount of tax which is not collected as a result of businesses adopting tax treatments that HMRC does not agree with – the so-called ‘legal interpretation’ part of the tax gap. However, although the measure has been much improved through the consultation process, the CIOT would have preferred a non-legislative response. The CIOT says that there are other things that could be done, many of which will be needed in any event if this compliance measure is to be capitalised on, without also adding to the burdens of compliant businesses.

John Cullinane, CIOT Director of Public Policy, said:

“We welcome the changes that have been made to this measure as a result of the consultation process. The draft legislation published yesterday shows that the Government has continued to listen to stakeholders through the second consultation and sought to address key concerns raised.”

The CIOT set out its comments in its submissions to the two HMRC consultations on this measure.²

John Cullinane continued: 

“We welcome the reduction in the number of ‘triggers’ in the definition of what is an uncertain tax treatment from seven to three, although we have some remaining concerns about the subjectivity of the definition, particularly in relation to the part of the definition based on an inevitably hypothetical view of what a court or tribunal might find to be incorrect.

“The draft legislation includes a welcome exclusion in respect of transfer pricing, recognising the particular difficulties presented by transfer pricing cases in respect of this proposed measure - due to there often being a range of apparently ‘correct’ treatments, all transfer pricing positions could be considered to be ‘uncertain’. As we said in our response to the consultations, requiring notification of transfer pricing positions would have produced a large amount of notifications for many businesses and been an unreasonable compliance burden.  

“The exclusion from the requirement to notify if HMRC are already aware of the uncertain tax treatment remains. This exclusion is necessary to minimise the compliance burden for large businesses that are already open and transparent with HMRC, because they will often have already been in discussion with HMRC on the matter.

“However, we remain concerned about the parity of treatment between businesses that have a Customer Compliance Manager (CCM)³ and those that do not.  The Government’s policy paper published yesterday⁴ said that for taxpayers without a CCM, HMRC will utilise their existing Customer Engagement Team to provide a structured opportunity to discuss tax uncertainties, so that they can also benefit from this exemption. It will be important that there is sufficient HMRC resource to make this an effective avenue for these large businesses.

“Another important aspect of this measure is that taxpayers will rely on HMRC’s published guidance to determine HMRC’s known position for the purposes of complying with this measure. We welcome that this measure is being taken as an opportunity for HMRC to look for further opportunities to improve their technical guidance.⁵

“Overall, the consultation process for this measure has been a good one, with significant engagement with HMRC and a willingness to discuss the concerns we raised. However, notwithstanding the improvements that have been made to the measure, we remain unconvinced that it will achieve the stated policy aims effectively or proportionately. We are not convinced that legislation is necessary to achieve the aims.⁶ There are other things that could be done, many of which will be needed in any event if this compliance measure is to be capitalised on, and the measure will inevitably lead to an increased compliance burden for all large businesses.” 

Notes for editors

1. The Government has decided that the requirement should be for notifications in respect of corporation tax, income tax (including PAYE) and VAT. This is a welcome reduction from the initial proposal which would have extended the requirement for notifications to excise and customs duties, insurance premium tax, stamp duty land tax, stamp duty reserve tax, bank levy and petroleum revenue tax.

2. The Chartered Institute of Taxation (CIOT) responded to the HMRC first consultation (which ran from 19 March 2020 to 27 August 2020) on Notification of uncertain tax treatment by large businesses. The CIOT response to the second consultation (which ran from 23 March 2021 to 1 June 2021) is here.

3. HMRC’s Large Business Directorate assigns a senior professional called a Customer Compliance Manager (CCM) to each of the UK’s largest businesses. The primary role of a Customer Compliance Manager is to make sure the business pays the correct amount of tax, at the right time.

4. Large businesses: notification of uncertain tax treatment - GOV.UK (www.gov.uk)

5. The CIOT is represented on HMRC’s Guidance Strategy Forum, set up to further improve the effectiveness of HMRC’s guidance. The complexity of the UK tax system means there are many situations when the legislation is uncertain in its application and taxpayers inevitably rely on guidance in various forms to find out about and navigate the system. Guidance extends to the traditional written guidance on GOV.UK, in HMRC manuals and other written formats, helplines, decision-based interactive guidance and the virtual assistant, guidance in newer formats such as online videos or webinars and HMRC’s direct engagement with taxpayers via online platforms and through the HMRC administered agent and customer forums. The increasing use of technology means also that guidance is increasingly embedded in digital tools and software.

6. The measure aims 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. The requirement will only apply to large businesses (a turnover above £200 million or a balance sheet total over £2 billion). The objective of this measure is to provide HMRC with timely and accurate information regarding tax treatments adopted by large businesses which HMRC may disagree with. It is also intended to identify areas of law that are currently unclear and allow HMRC to focus on clarifying these areas of uncertainty, ultimately resulting in fewer disputes caused by uncertainty in the tax law.