Host

• Stephen Relf, Technical Manager, Tax, ICAEW

Guests

• Richard Jones, Senior Technical Manager, Business Tax, ICAEW
• Annis Lampard, Partner, Deloitte

Producer

• Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW exploring the latest developments in the world of tax. In recent months the government has published guidance and announced policy changes that could significantly affect how tax returns are prepared and how HMRC inquiries are conducted. In this episode, we'll explore the implications of some of those changes for taxpayers and for agents, including new HMRC guidelines on ensuring a tax return is correct and complete.

[Teaser Audio] Annis Lampard: It asks taxpayers to weigh their tax returns against what a tribunal or higher court might opine on. And that can be tricky. It's a hypothetical test, and it's quite a weighty one.

SR: And plans to extend a requirement to notify HMRC of an uncertain tax treatment.

[Teaser audio] Richard Jones: This regime requires taxpayers to notify HMRC of the uncertainty, but then HMRC doesn't, at the moment, have any obligation to resolve that uncertainty. I think it would really help if that could be part of the system.

SR: I'm Stephen Ralph, a technical manager for tax at ICAEW. Today, I'm joined by a tax track regular guest, Richard Jones, Senior Technical Manager in the institute's tax faculty. And by Annis Lampard, a partner at Deloitte. Annis is new to the podcast, but not to the institute, as she chairs the faculty's Compliance and Investigations Committee, with support from Richard. Welcome Richard and Annis.

RJ: Hello there.

AL: Good to be here. Thank you.

SR: Now, Annis, as I mentioned, we are seeing a lot of change in the tax return compliance and enquiry space at the moment, before we get into the detail, why do you think this is?

AL: So there's some really big picture change happening in the tax system at the moment. HMRC published their tax transformation roadmap last year, which set out three key goals, and as you would expect, one of those is closing the tax gap. And that's also a key priority for the government at the moment. So the way in which that's brought to life is through the policy changes we're going to discuss today that will influence the filing of returns and HMRC tax inquiries, but at that big picture level, it may also reshape the relationship between HMRC as the tax authority here in the UK, and the taxpayer or tax agent.

02:21 – The compliance policies

SR: So then let's turn to some of the specific policies. In September 2025 HMRC published Guidelines for Compliance 13, explaining what it expects of taxpayers and agents when it comes to ensuring that tax returns and other documents sent to HMRC are correct and complete. Richard, could you start us off please by putting this new guidance into context?

RJ: Yeah, so as you mentioned there, a number of tax returns, and in fact, indeed other forms that are often completed by taxpayers have a declaration on them. And that usually says that the person signing the return confirms that the return is correct and complete, and I'm doing air quotes here... "to the best of their belief". So what does correct and complete mean? That's something that hasn't ever really been tested by the courts, and so this is kind of what this guideline for compliance 13, is trying to give guidelines on. So essentially, what it's saying is that it's the taxpayers responsibility to establish all the relevant facts, and that the taxpayer has reason to believe that the tax positions taken in the return are most likely to be found correct if they were to be considered by a tribunal or court, then that will be considered to be correct. Now, of course, that's a hypothetical question. What would a court or tribunal decide? And so the GFC goes on to explain different things that it would expect of a taxpayer and indeed of an agent in making their best efforts to determine what that correct possession is.

SR: Now, I think the guidelines pick out three situations where there is uncertainty. So first, whether the taxpayer is considering applying a novel interpretation of the law. Second, whether they're considering an improbable interpretation of the law. And third, where they are still uncertain of the correct interpretation of the law, despite having made their best efforts to resolve that uncertainty. Could you give us a bit more detail on those please, Richard?

RJ: Yeah, so let's go through each of those in turn. So the first one is a novel interpretation. So what does that mean? It basically means an interpretation of the law that a court or a tribunal hasn't previously considered. So it's most likely to apply to relatively new legislation, or maybe legislation which just hasn't gone to court. The GFC says that the taxpayer must have a good reason to believe that the interpretation they're applying in their return is correct. So some of the things that the taxpayer could do to establish that is seek advice from a reputable agent, read all relevant HMRC guidance. So HMRC is saying that the steps that the tax payer should take, should be in proportion to the level of uncertainty and the resources available to the taxpayer. So in other words, for example, if the level of uncertainty was very high, then you'd expect more due diligence on the position to be carried out. But equally, if the resources available to the taxpayer are relatively low, then HMRC would probably take that into account in terms of how much work is carried out by them. So that's the first one. The second one is an interpretation of the law that's improbable. So what does that mean? It means that it's unlikely that the courts or tribunals would agree with it. We're not talking about here situations where they're kind of finely balanced, 50/50, is it A or is it B? It's situations where, essentially, the taxpayer is taking a punt, if you like. The third one is where the correct position is uncertain, even after taking advice and consulting HMRC manuals and so on. So here, HMRC recommends that the taxpayer discloses any significant uncertainty alongside the return, and it goes on to explain what sort of form that might take. And that also links in with what we're going to be talking about later around uncertain tax treatments. So if you want to know more about this, there's a link to GFC 13 in the show notes. There's a lot of great detail in there to find out about what HMRC thoughts are in this area.

AL: It's worth saying that the underlying principle in this Guideline for Compliance 13 is an important one. It's not appropriate to file a tax position that you know will fall over at first challenge, but inevitably, this guidance has to talk in quite black and white terms about a tax code that has a good deal of subjectivity and shades of gray in it, and that creates something of attention with the current litigation and settlement strategy, which is a framework governing all HMRC taxpayer disputes. And that strategy acknowledges that tax doesn't operate in a vacuum, and that the correct answer for tax purposes is an interaction between the facts and the legislation.

SR: So quite a lot to take in there. What would you say are the main takeaways for someone who's coming to GFC 13 for the first time?

AL: So there's a clear emphasis in the guideline on checking HMRC guidance and engaging with advice when filing your tax return. As we've also then mentioned, it asks taxpayers to weigh their tax returns against what a tribunal or higher court might opine on, presumably some years down the line. And that can be tricky. It's a hypothetical test, and it's quite a weighty one. So in practical terms, a good question to think about is: if you step outside your own view and think what a third party would consider to be the commercial reality of the transaction or events that you're reporting, that might be a good starting point. And then the third thing is, I expect this to impact not just the tax return filing, but also future inquiries into any of these tax returns. So you might well expect to see HMRC ask more pointed questions about what steps the signatory took to ensure that the return was correct and complete. That might flow through into penalty negotiations, but it might also leave a question about: are you taking advice? Are you keeping that advice up to date? And if you have relied on particular advice or guidance, have you kept a copy of that alongside your tax return so that you can show your workings later?

08:26 – Uncertain tax treatment

SR: Okay, so let's park GFC 13 for now, but stick with 'uncertainty'. So HMRC has recently published a consultation extending the current notification of uncertain tax treatment regime. Now we have published an article exploring the changes in detail, and there will be a link to that in the show notes. But Richard, could you start us off by giving a quick overview of how the regime works at the moment?

RJ: Yeah, so at the moment, this is a regime that only really applies to large businesses. So we're talking here about companies, groups, partnerships that meet certain turnover and balance sheet tests. So it's a relatively small population, and it only applies to three taxes. So it's corporation tax, VAT and income tax, which includes paye issues. And it also applies where, essentially, there's what's called a tax advantage, the quantum of which is over 5 million pounds. So in other words, let's say, for example, that you had two potential tax treatments of a transaction, and the difference in the tax liability under those two treatments is more than 5 million, then that would meet that trigger. So obviously, if you have more complex situations, that's a more complex test to determine.

SR: And what is the government proposing to do?

RJ: So there are a number of proposed extensions to the regime. So the first one, and probably the most significant one, is that the government is looking to introduce individuals and trusts within the scope of the regime. So that would be quite a significant change. Now, obviously individuals don't have balance sheets. They might do ,but you know, they're not businesses and so that test doesn't apply. So that means that the only threshold is the 5 million. The other considerable thing is an extension to the actual types of taxes to which this regime would apply in order to catch more taxes that individuals and trusts might be liable to i.e., things like CGT, IHT and SDLT.

SR: And what about the triggers for notification?

RJ: So in order for an uncertain tax treatment to need to be notified, it also needs to fall under one of the existing two triggers. And the proposal is to add a third one. So the first one is that the position that is being taken in a return is known to be contrary to the one that HMRC has taken, either because it's set out in HMRC guidance, or HMRC has specifically said this to the taxpayer or a representative. The second trigger is that there's a provision in the accounts now, presumably that won't apply to individuals, because again, individuals don't prepare accounts, at least for their own benefit. So the proposed third trigger is that it will apply where there's more than one credible interpretation and HMRC view isn't known. But also we've noted, for example, there are some situations where HMRC guidance can be contradictory. In one manual, it might say this, and in another manual it might say something different. So 'question mark': is HMRC view not known in that situation? That's not entirely clear. So again, it's something perhaps to explore during the course of the consultation. The final change that's really of significance here is, at the moment there's an exemption, you don't have to report or notify if HMRC is already aware of the uncertainty, and the taxpayer can use their judgment about whether that's the case. Going forward, the proposal is that the HMRC will need to confirm, and presumably in writing, that it already knows about the uncertainty. So that adds an additional admin hurdle to this process. So as you can imagine, if we're bringing lots of different taxes in—SDLT, IHT, CGT, income tax—all of those have got different returns that are due at different times, and that could cause quite a big admin burden. So the one possible concession is the introduction of a separate annual notification date, which would say that once a year, the taxpayer needs to notify all the uncertainties that are in all of their returns that are filed in that year. So we will see how this pans out. And obviously we're looking for comments from members, because we will obviously be responding to this consultation.

SR: And if you would like to comment on the proposals, please look at our article covering the consultation, which is linked through from the show notes. If you scroll down to the bottom, you'll see details there for how you can get involved and give your views to Richard. Lots of significant changes there, including for taxpayers, are currently within scope for large businesses, but also for those taxpayers who may be brought within scope of the regime in the future. Annis, what's the Government's intention here?

AL: So the intention is to reduce the loss of tax arising from legal interpretation. And like Richard, I'm sort of applying some quotes there. That's direct language used in the consultation. So legal interpretation obviously covers differences in interpretation between the taxpayer and HMRC on how both parties thinks the law applies in certain circumstances. It also has a slightly broader definition. For example, it includes differences in opinion about the correct valuation, apportionment or calculation methods that should be applied. And the reason why legal interpretation is a focus at the moment for HMRC goes back to that overall aim I said at the start of the podcast about closing the tax gap in 2023 / 24. The overall tax gap was calculated at 46.8 billion, and legal interpretation made up 5.4 billion of that. So in HMRC size, this is a fairly significant and growing proportion of the tax gap, and they are taking policy action to try and address that.

SR: Okay, so this may help HMRC close the tax gap and obviously increase tax revenues, but is it likely to place a significant additional burden on taxpayers and their advisors?

AL: A very good question, and I think it's fair to assume that if this consultation was to proceed to policy changes, then as new taxpayers are brought within this regime for the first time, that in of itself, would be a burden and an extra compliance action and process to be completed. In addition to that, there are some practical considerations. Clearly, this is a consultation. There's lots to be ironed out, and we will be thinking through this with members. But just as some examples within the current large business customer base who interact with this notification regime, there's a long standing customer compliance model. But for wealthy individuals, it's not the case that everyone who might have an uncertain tax position worth over 5 million will have that customer compliance manager. So there may not be an obvious route into HMRC to make the notification or to try and gain certainty. And I think the second point is around cost, which is individuals will need help quantifying the tax at stake in determining whether the 5 million threshold has been breached. That could lead to taxpayers and their agents having to run multiple computations. And finally, there's a practical question of, what happens if you have submitted a clearance but not heard back from HMRC by the point in which you have to decide whether or not to notify that you have an uncertain tax treatment? Again—who should you contact? Should you go back to the clearance team? Should you go to another part of HMRC? Should you trust that? Because you have done your piece in corresponding with HMRC, you should take no further action. So, like I say, many things to be ironed out on a practical front before this policy could be brought in.

RJ: Yeah, in terms of agents, I think those who are currently dealing with large businesses will probably be fairly familiar with these rules now they've been in place for a few years. But particularly those with, let's say, primarily a private client base won't probably have dealt with them, and so therefore they're going to have to get up to speed with them. And you know, for a lot of taxpayers, it's just not going to be an issue, because they're not going to be having potential tax advantages of more than 5 million. But particularly, let's say, if you're a business owner that's just going to sell their business, or you're going to carrying out a significant transaction, or perhaps there's a very valuable property that you're planning to sell, or something like that, it could well be caught. And just those one off situations—you might just forget that there are notifications required. So I think it's something really to make sure that all wealthy taxpayers and agents dealing with them are up to speed.

SR: So if we look at this in combination with GFC 13, I think it's very fair to say, from what you, Richard, have said and Anis have said, that this means more work for taxpayers and agents. Do you think that's a price worth paying for increased certainty?

RJ: We're not really getting much greater certainty. I mean, this regime requires taxpayers to notify HMRC of the uncertainty, but then HMRC doesn't, at the moment, have any obligation to resolve that uncertainty. I think it would really help both taxpayers and agents, if that could be part of the system. And I mean, ways which that could be done is through a more well resourced clearance system, for example. And it could also be done through expanding HMRC guidance. At the moment, there's a lot of information in the guidance about what taxpayers can't do. It'd be useful if actually there's more detail about what they can do. The other potential risk is that it could lead to a hardening of assumptions on the part of HMRC, where if it believes that something isn't 100% clear or 100% lined with its own view, then the assumption might be that the view that's being taken is contrary to the law, and that could drive up more inquiries, more litigation, and at a time where the tribunals are already really busy, that could have a real knock on effect.

AL: Yes, I completely agree, especially with that last point. As someone who sort of sees and resolves tax disputes for their day job, there is a more hard line approach that I would say can be sensed in both Guideline for Compliance 13 and these proposed notifications of uncertain tax treatments. It comes through in the language, rather than in a sort of explicit statement, but there seems to be an implication that taxpayers are starting from the position of wishing to mislead HMRC, and that's not what I see in my practice. I'm sure it's not something that will resonate with many listeners either. And so whilst there is an undoubted minority who do try and game the system, if the starting point for policy making in tax at the moment is going to be treating all taxpayers as inherently delinquent, that can actually leave taxpayers and their agents who are trying to be compliant feeling like they're not getting a fair hearing. Now here in the UK, we're actually very lucky that we have a tax authority that holds itself accountable to objective ethical standards of high behavior, and there's a fairly high level of trust in the tax system as there should be. So it would be unfortunate if some of these moves that we've been talking about aimed at closing the tax gap instead actually have a side effect of chipping away at trust in HMRC and the wider tax system.

19:24 – What could be in the enquiry framework?

SR: So far then, we've looked at two new developments that affect how returns will be filed, and we've seen how that could also potentially influence the post filing discussions and disputes around those returns. Now, Annis, could you explain what developments we're expecting to see in the enquiry framework?

AL: Just as a simple introduction to what the framework is: generally, HMRC has 12 months from when the return is filed to then open a tax enquiry into it. There are some extensions where return has been amended, but 12 months from the filing point is the standard rule of thumb. And then beyond that, HMRC has discovery assessment provisions. That allows them to assess tax within 4, 6 or 20 years from the end of the relevant accounting period or tax year, if there's been an error discovered after the enquiry window closes. In terms of how the enquiry process runs again, a very simplified version would be that there's an opening letter usually accompanied by an information request. Information requests go back and forth between the taxpayer and HMRC, and then there's a discussion around the technical interpretation of the facts, ultimately leading to settlement negotiations where tax interest and penalties are agreed. And in my experience, the two parts that tend to absorb most time and interest in that enquiry cycle are information gathering, which can take months or sometimes years to resolve, and then the penalty negotiations, because penalties have a mix of financial and reputational impact for taxpayers. It's those two areas of information gathering and penalties where we're expecting to see both a practical impact of the actions taken to close the tax gap and also this wider philosophical shift about the relationship between tax authority, taxpayer and tax agent.

SR: So Richard, I know you've had some contact with HMRC lately around what they call misrepresentation of evidence. Could you tell us a bit more about that?

RJ: We're aware that HMRC has seen some examples in recent tax litigation cases where it considers that evidence has been what it calls withheld or misrepresented. So this can range from, for example, the taxpayer or agent submitting documents which have been edited to remove certain sections without that being openly acknowledged. So for example, a section that might be considering the tax position might be removed, but not be notified to HMRC through to partial answers given to HMRC questions. So HMRC is currently looking at whether it believes this behavior exists across a wider range of taxpayer populations. So it's clearly a hot topic, and something in HMRC's mind at the moment and will be when it requests and tests information during an enquiry. For example, we're seeing more skepticism from HMRC and what this could do—it could lead to greater use of formal information notices to ensure that all relevant information has been provided, and similarly, greater use of third party notices where the taxpayer says that a particular piece of information isn't in their power or possession. And finally, we could also see HMRC explicitly ask the taxpayer to confirm in writing whether they have provided all the available information.

SR: So Annis you mentioned earlier, the importance of the information request. Do you have any practical tips for how best to approach an information request?

AL: Yes, I'd like to offer three suggestions in particular. So with the first, if we start at ground zero, it's clearly wrong to fabricate or remove documents and present an edited document to HMRC as if it is the full text. So my first tip would be that if you are redacting or simplifying a document, whether that's providing a simplified structure chart or providing a sample agreement, be clear about what you're doing and don't present it as the full document. Secondly, when you're answering an HMRC information request, it's a good idea to discuss the request with HMRC upfront, ideally when that request is still at an informal stage, because that's a great time to agree with HMRC what level and format of information is reasonably required, and even when an information request should be reduced, for example, if it's onerous, and then all parties are on the same page around that. And thirdly, once you've reached that agreement, that gives you a framework as the taxpayer or tax agent for making further judgment calls about the right balance of how much information to provide, what the right level of detail is versus maintaining appropriate privacy. And if you can agree with HRC upfront that, for example, a sample of bank statements, of emails, or board minutes is appropriate rather than a full year, then there's a far lower risk of HRC arguing later in the enquiry that evidence has been withheld and misrepresented.

SR: So Annis you mentioned earlier that we may see some changes to penalties. And I think I remember we had a consultation on this last year. Is that correct?

AL: That's correct, yes. There was a consultation that ICAEW supported and offered suggestions to the government on around overall simplification of the penalty regime. We're also expecting another consultation shortly around a possible new category of behavior called recklessness. So we're going to wait and see when that consultation comes out, what it says around how recklessness sits alongside the existing civil regime of careless and deliberate.

SR: Do we think that the developments we've discussed today will impact on this at all?

AL: Yes, and probably in two ways. So firstly, if we think back to Guideline for Compliance 13, I would expect to see HMRC point in the future to that filing declaration that a tax return was correct and complete, and weigh that as part of the evidence around weather a careless or deliberate penalty should be charged. And secondly, we've talked about HMRC concerns around misrepresentation of evidence. Although the behavioral penalty is charged with reference to what led to the original error, there is a maximum and minimum penalty range, and the way you move down that scale to the minimum penalty is by displaying cooperation during the enquiry itself. Clearly, if HMRC has concerns about misrepresentation of evidence, they are not going to grant the maximum mitigation, and therefore penalties will rise overall.

RJ: And how do you see this affecting the relationship between the taxpayer and HMRC?

AL: I think if you look across all the measures we've talked about on the podcast today, and consider the cumulative effect, I'm anticipating that tax disputes will see much more heated debates around behaviors, and possibly HMRC looking to assert much higher levels of deliberate behavior. That would be concerning, if that's the case. Deliberate is a high bar, which has been tested in cases all the way to the Supreme Court, and it can have serious non financial consequences. For example, if you have a deliberate error with over £25,000 worth of tax at stake, and where the maximum mitigation for cooperation during the enquiry has not been granted, that can currently result in a taxpayer's name being put on the register of deliberate defaulters, which is in the public domain.

SR: As you mentioned, we are expecting something on recklessness soon. If that does happen, then we will put that in the show notes. It'll be a link to an article or to the consultation or the announcement. So then finally, for this episode, there are also significant changes affecting agents. At present, HMRC can impose penalties and other sanctions on tax advisors, where it finds that the advisor has engaged in dishonest conduct. From April, the bar is being lowered, and dishonest conduct will be replaced with sanctionable conduct. This is an important change, and we will cover it in detail in articles and in future episodes of the tax track, but that's all for this episode. Many thanks, Richard and Annis for your contributions.

AL: Thank you.

SR: And thank you for listening. All of the topics we've discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don't forget to subscribe so you never miss an episode. You can rate and share the podcast too. We'll be back next month with the next tax track. In the meantime, why not check out the sister podcast from ICAEW.

Philippa Lamb: Top up your CPD, with our two monthly podcasts, Accountancy Insights and Behind the Numbers—the latest in business and accountancy news and analysis with me, Philippa Lamb and expert guests.

SR: And there's also the student’s podcast aimed at young professionals. To keep up with the latest developments in tax, please make sure to subscribe to our weekly Taxwire newsletter. Tax Faculty members also have access to our in depth Tax Line articles. Thank you for listening.