Improvement to ‘uncertain tax treatment’ measure welcomed

The Budget confirmed that the government will introduce the new compliance burden for large businesses, requiring them to notify HMRC where they have adopted an ‘uncertain tax treatment’, from April 2022. Uncertain tax treatments will be defined by two criteria: that a provision has been made in the accounts for the uncertainty, or that the position taken by the business is contrary to HMRC’s known interpretation (as stated in the public domain or in dealings with HMRC). The third criterion which was included in draft legislation published in the summer (that of where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect) will not be included, although the government says it is still considering this trigger for possible inclusion later.

Adrian Rudd, Chair of the CIOT’s Corporate Taxes Committee, said:

“This is a welcome move, and takes out the most problematic part of this new measure, but we are still unconvinced that the measure is needed at all.

“The ‘third trigger’ defined an uncertain tax treatment around an inevitably hypothetical view of what a tribunal or court might find to be incorrect in respect of a tax treatment; it was loosely drafted and poorly conceptualised¹. Its inevitably uncertain application would have undermined any potential efficacy of this measure.

“That the third trigger is not being introduced, at least at the outset, shows that the government has listened to stakeholders. There has been significant engagement with HMRC and HMT and a willingness to discuss the concerns we raised throughout the consultation process², which has been valuable. Nevertheless, because of the starting point, notwithstanding the improvements that have been made to the measure as a result of this process, and today’s announcement, we remain unconvinced that the measure will achieve the stated policy aims³ effectively or proportionately.

“We have never been convinced that legislation is necessary to achieve the policy aims. Although this latest development means that the measure that will now be introduced will be easier to comply with, it will still be an additional compliance burden for all large businesses^, including the majority that are already open and transparent in their dealings with HMRC. In our view similar effects could have been achieved without legislation. Steps could have been taken within the existing tax administration framework that would be worthwhile and effective in their own right and these steps will largely be required to make this measure a success in any event.”

Notes for editors

1. The Chartered Institute of Taxation (CIOT) said in our comments on the draft legislation that the third trigger was inherently uncertain and lacking in precision and would have resulted in an uncomfortable piece of legislation to deal with for those large businesses that want to be compliant. Our comments on the draft legislation and guidance are here.
2. The CIOT response to the HMRC first consultation (which ran from 19 March 2020 to 27 August 2020) on Notification of uncertain tax treatment by large businesses is here and the CIOT response to the second consultation (which ran from 23 March 2021 to 1 June 2021) is here.
3. The objective is to reduce the legal interpretation portion of the tax gap. 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 will also 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.