HMRC has published a second consultation on developing rules for large businesses to report uncertain tax positions, as it continues to work with stakeholders on how to resolve tax disputes quickly.
While HMRC agreed to defer legislation requiring large businesses to disclose certain areas of tax uncertainty until April 2022 due to the COVID-19 pandemic, announcements on Tax Day make it clear that the government is still committed to the approach.
The measure is an attempt to resolve tax disputes more swiftly and without the need for protracted litigation. HMRC is clear that the policy objective is to close the tax gap arising as a result of legal interpretation.
On 23 March 2021, HMRC published a summary of responses to the first consultation and opened a second consultation on potential rules. In reviewing these documents it is clear HMRC is trying to address some of the concerns raised in response to the first consultation.
One of the most consistent criticisms of the proposed regime was that the definition of uncertain tax treatment was not sufficiently clear. ICAEW’s response to the consultation (ICAEW Rep 56/20) raised concerns that, as it stood, the definition was too subjective.
In the second consultation HMRC is seeking feedback on a series of “objective tests” to address this. If any of the tests are met, the business will have to report the uncertainty.
There was feedback that those businesses without a customer compliance manager caught by the rules could face an increased administrative burden. HMRC has indicated that an equivalent means for discussing the rules will be put in place for these entities.
Other notable developments to the regime in response to the first consultation include:
- The regime will only apply to VAT, income tax (including PAYE) and corporation tax, rather than all taxes subject to the senior accounting officer (SAO) regime.
- A notification will have to be made for each separate tax and will be due when the return is filed (or when the last return is due for that financial year) and not when the SAO notification is submitted.
- While HMRC is open to discussing a materiality threshold, it is clear that it is concerned that materiality is not a concept routinely used as part of the tax system. However, HMRC has listened to responses indicating that the £1m de minimis is too low and is now considering a figure of £5m.
- There will only be one penalty for failure to notify a tax uncertainty and this will fall on the entity not on any individual (with slightly modified rules for large partnerships).
- Further consideration is being given as to how the business risk review process could be used to limit the scope of the measure.
- HMRC agrees that further consultation is required in respect of VAT, in particular the VAT treatment of new products
ICAEW’s Tax Faculty looks forward to working with HMRC to develop the rules ahead of implementation in April 2022.
More analysis of Tax Day announcements:
- Tax Day announcements take a long-term view
- Tax Administration Framework Review is ‘mammoth’ undertaking by HMRC
- Earlier tax payments may be coming in the next parliament
- HMRC consults on mandating PII for tax advisers
- Transfer pricing documentation requirements to be made more robust
- Did Tax Day deliver on sustainability?
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.