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Government responds to House of Lords report


Published: 23 Feb 2022 Update History

The government has responded to the recommendations made by the House of Lords Economic Affairs Finance Bill Sub-Committee in its report into two tax law changes: basis period reform and uncertain tax treatments.

The government has accepted some of the recommendations from the House of Lords Economic Affairs Finance Bill Sub-Committee on two tax changes. 

In particular, it has set out commitments that HMRC will make to assist businesses and their agents in confirming the overlap relief they have available to off-set against transitional profits on the change to a tax year basis of taxation.

The sub-committee heard evidence from a range of interested stakeholders, including ICAEW. It published its report on 15 December 2021 into two matters included in the 2021-22 Finance Bill, namely basis period reform and the introduction of the notification of uncertain tax treatments regime for large businesses. The Financial Secretary to the Treasury responded on behalf of the government on 1 February 2022. The most salient points are summarised below.

Basis period reform

Overlap profits

One of the biggest concerns raised by businesses and tax practitioners relates to the lack of information they may hold in relation to the overlap profits that could be off-set against transitional profits arising as they transition from the current basis period rules to the new tax year basis of taxation. In its response, the government confirms that: “HMRC holds data on overlap relief where a business has, at some point, reported the amount of relief it has generated on its tax return, and this data can be provided on request.”

It goes on to confirm that: “Where HMRC does not currently hold a specific record on the amount of overlap relief carried forward, it may be possible to identify overlap periods in past years’ tax returns and reconstruct a figure for overlap relief.” 

While it stops short of making a definite commitment on when and how quickly it could provide this information, HMRC does appear to be willing to help businesses and their agents to establish their overlap profits position wherever possible.

Profit estimates

One of the features of the new regime is for businesses with an accounting period end that does not coincide with the tax year end of 5 April. The profits to be taxed for a particular tax year will include a proportion of the two accounting periods falling partly inside the tax year concerned. The profits relating to the second of such periods may need to be estimated at the point of completing the business’s tax return if they are not known with certainty at that time. HMRC has been considering options for how to deal with this issue. Engagement with stakeholders will begin this month, with decisions due to be made by autumn 2022.


HMRC will publish guidance on the new regimes as soon as possible after Finance Act 2022 receives Royal Assent. In the meantime, ICAEW Tax Faculty is preparing a Tax Guide in response to many of the questions raised during its webinar on basis period reform. If you have any particular technical points you would like answered in the Tax Guide please send them to taxfac@icaew.com.

Notification of uncertain tax treatments (NUTT)

Monitoring the regime

The sub-committee recommended that HMRC monitor the impact and effectiveness of the regime, and carry out an evidence-based evaluation of the measure before legislating to introduce a potential third trigger for notifications. 

The government has stopped short of this, but has promised to monitor the regime, focussing on proportionality, administrative burdens, customer service levels and achievement of its policy objective – to reduce the legal interpretation portion of the tax gap.

It has stated that any decision to include a third trigger in a future Finance Bill would require a good understanding of the needs of large businesses, alongside strong evidence it would be effective in tackling the tax gap.

Allocation of Customer Compliance Managers (CCMs)

The sub-committee had recommended that all businesses within the scope of the NUTT should have access to a CCM. The government has responded by saying that it believes that the 300-400 businesses dealt with instead by HMRC’s Mid-Sized Business Customer Support Team will be provided with an equivalent level of support to a CCM and that the team will have access to the same tax and other specialists that CCMs deal with.

General recommendations

The sub-committee considered that some of the difficulties HMRC encountered with designing these regimes could have been avoided by beginning the consultation process at stage one, as defined in the Tax Policy Framework drawn up in 2010 (setting of objectives and identifying options). It recommended that all future tax consultations follow this approach. The government has rejected this recommendation, arguing that different policies will require varying stages of consultation.

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