ICAEW queries need for ‘uncertain tax treatment’ reports

27 August 2020: ICAEW has questioned whether a new regime requiring large corporates to disclose tax uncertainties is necessary and warns it could lead to over reporting and increased administration.

At the Spring Budget (11 March 2020), the Chancellor announced a consultation into requiring large businesses to notify HMRC where they have adopted an “uncertain tax treatment”, with the measure expected to apply from April 2021.

In its response to the consultation, ICAEW has questioned what arrangements this new measure will target that would not be caught under existing legislation and practices.

“Without this clarity, over reporting and an unnecessary burden on compliant businesses will be likely. This will be even more marked by those entities which do not have a Customer Compliance Manager (CCM),” states ICAEW Representation 56/20.

One of the largest concerns raised by ICAEW members is that “tax uncertainty” is very hard to define and much more guidance is required. Complexities will arise in areas of tax which contain inherent uncertainty, as they turn on the facts of a case, and involve significant judgements by the taxpayer.

ICAEW argues that the regime needs to give compliant taxpayers the comfort to make informed judgements about their tax position without the need to report. There is also a wider point that the self assessment system is built on the premise that taxpayers are able to adopt a filing position based on the law and existing practice and HMRC can then raise an enquiry as it sees fit.

In its response, ICAEW urged HMRC to consider the introduction of a “reasonable steps” provision to make it clear to affected businesses what governance procedures are expected of them when dealing with challenging areas of tax law.

This would help encourage good tax governance practices and provide a clear defence to those businesses who may adopt a tax position in good faith which HMRC might disagree with. It must also be considered that some technical disagreements have to be resolved by litigation and ultimately the taxpayer’s position could be upheld.

Many ICAEW members felt that the regime should be more targeted, such that only businesses who had exhibited high-risk behaviours would be subjected to the increased compliance burden. This would also provide an incentive to businesses to implement effective tax-risk management procedures, encouraging positive behaviours.

ICAEW will continue to work with HMRC as this consultation develops and clarity emerges concerning how the measure will work in practice.