Further development and clarity are needed if HMRC proposals for large businesses to report uncertain tax positions are to succeed, according to ICAEW’s Tax Faculty. Better results might be achieved by reducing uncertainty in legislation and encouraging greater communication.
In its response to HMRC’s second consultation on its plans for the notification of uncertain tax treatment by large businesses, ICAEW reveals it is unconvinced that the proposals will result in more certainty and a reduction in the administrative burden on businesses.
While welcoming HMRC’s work in attempting to address the issue of uncertainty in tax treatment of transactions and arrangements, the Tax Faculty outlines a number of concerns in ICAEW Rep 55/21. These include whether it is possible to achieve sufficient objectivity to make the proposals workable in the real world, and whether the relatively modest additional tax revenue expected (£145m over five years) is sufficient justification for the additional costs to businesses and to HMRC.
“We anticipate that compliant businesses will be overly prudent in their approach to the new regime and HMRC may receive a significant number of notifications which it would then need to devote time and resource to reviewing,” it states. This may have a negative impact on the tax yield compared to more traditional forms of enquiry.
The faculty also warns that the proposals could be counterproductive with some businesses making use of the suggested regime to wait for HMRC to challenge them on the tax stance they are taking, rather than discussing it with their customer compliance manager (CCM). While other taxpayers may take the view that a tax treatment is not uncertain and not notify at all.
ICAEW argues that the prevention of tax disputes or their early resolution could be achieved “more cheaply and effectively” through more active discussion between businesses and their CCM or an extension of the risk review for higher-risk businesses.
It also argues that the government and HMRC could do more to prevent the uncertainly occurring in the first place. The faculty suggests that drafting clearer legislation and being more transparent in guidance, particularly where HMRC’s position has changed, could prevent differing interpretations of tax treatment.
In response to its first consultation that the definition of an uncertain tax treatment was too subjective, HMRC’s proposals aimed to increase the objectivity of the triggers for notifying of an uncertain tax position. The faculty concludes that only three of eight proposed triggers are sufficiently objective and stresses that differences of opinion over valuations and pricing should be excluded from notification. “Only uncertainties arising in respect to interpretation of tax law should need to be notified,” it states.
The faculty also argues that: “Notification should only be required where HMRC’s position is unequivocal and the taxpayer takes a position that is more favourable to itself than this. There should be no additional administration burden placed on businesses as a result of HMRC not being sufficiently clear about its position on a particular point of law.”
Hear more at Virtually Live!
ICAEW's flagship digital conference returns for 2021 and includes sessions on tax. Hear from experts including Rebecca Benneyworth and ICAEW's Anita Monteith.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.