The guidelines acknowledge that there is a significant volume of published material and state that the uncertain tax treatment regime “is not intended to act as a series of traps resulting in penalties, where a business has taken a reasonable approach to establish HMRC’s position”.
However, this new regime means that large companies will have to consider whether there are any HMRC guidelines which conflict with a tax treatment they have adopted. It therefore introduces an additional administrative burden and potential cost.
The guidelines state that “HMRC expects a level of familiarity with its published documents” and suggests that it would expect a company to have considered guidelines that are easy to find – for example, by being in a manual guidance that is clearly relevant to the topic. in question, or advice that can be found by searching using relevant search terms. The guidelines suggest that if the relevant tax matter is novel, contentious, high value or high risk, further consideration from HMRC’s perspective would be expected.
The views known to HMRC may also derive from dealings with HMRC regarding the business. These may include discussions with an HMRC Client Compliance Officer (CCM) or HMRC tax specialist, as well as written advice of HMRC’s correct tax treatment or responding to a request for non-statutory clearance.
Any opinion expressed directly to a particular taxpayer or regarding a particular situation will not apply to other taxpayers or other situations.
There is no need to notify HMRC under the known location criterion if HMRC’s location is not known or unclear. Where HMRC’s position is inconsistent, the known position should be taken as the most recently published position statement. For example, based on an example given in the final guidance where HMRC fails in litigation but has not updated its guidance to reflect the court ruling, businesses must still inform HMRC if they adopt a tax position which reflects the outcome of the dispute on the grounds that it remains contrary to the known position of HMRC.
This is an important point because HMRC often takes time to update its guidance following an unfavorable judgement; and the duty to notify remains in place even in circumstances where HMRC has lost in the Supreme Court and has therefore exhausted any right of legal challenge. So even where HMRC is manifestly wrong in law, taxpayers can still be penalized if they fail to comply with the scheme’s requirements.
Exemption where HMRC is already aware
Businesses are not required to formally notify a tax treatment if it is reasonable to conclude that HMRC already has all or substantially all of the information that the business should provide in the notification.
In practice, many large companies will engage in regular early-stage discussions with HMRC regarding tax uncertainties. The guidelines recommend that if taxpayers wish to avail themselves of the exemption, they should make it clear to HMRC that such discussions are being undertaken with a view to avoiding the notification requirement; and document this discussion.
The exemption will apply in circumstances where the same information is provided as would have been provided in a formal notification. Helpfully, the guidelines state that HMRC will confirm to taxpayers whether the exemption has been complied with.
Any changes to a transaction or tax treatment following discussions with HMRC must be notified. Failure to do so will void the exemption.
Taxpayers do not need to notify again of uncertainties in returns due on or after 1 April 2022 if notification has already been made to HMRC before 1 April 2022 – for example, through discussion with a CCM. However, the guidance advises taxpayers to tell HMRC in interactions prior to April 2022 that they are seeking to meet the requirements and benefit from the blanket exemption. They are also advised to keep a record of the interaction as proof of the disclosure and share it with HMRC to avoid future investigations.
HMRC is trying to encourage early engagement and transparency from taxpayers and says it will give priority to those claiming an exemption (because they have already disclosed enough information) to those giving formal notice of uncertain tax treatment (to whom the exemption does not apply): “HMRC will assist where possible, but will not prioritize assistance to customers who engage early and apply for an exemption in good time”.
The notification must be made no later than the deadline for filing a related “relevant return” which is due after April 1, 2022. The notification requirement applies separately to each relevant tax.
Where the relevant declaration is an annual declaration, such as a corporation tax return, the notification must be made on or before the date on which the declaration is due. Where the relevant return is not an annual return, such as a VAT or PAYE return, notification must be made no later than the date on which the last relevant return for the financial year in question is due.
The notification is made on a digital form which will be available from April 2022. HMRC has further updated its guidance page on notification content requirements to indicate that it has the force of law and to expand on the details that need to be submitted. Information that must be disclosed includes the facts or description of the transaction or position that created the uncertainty; details of the uncertainty and alternative tax treatment and any relevant law, case law and HMRC guidance to which the uncertainty relates. There are currently no exclusions for inside information by law.
It will be important for companies to ensure that the notification meets all of these requirements to avoid it being treated as an invalid notification, with the consequent risk of sanctions.
HMRC guidance confirms that there is no direct reading of a notification made to the risk rating of a large business, so making a notification will not automatically mean that a business cannot be low risk.
The guidance also confirms that uncertain tax treatment is unlikely to affect the certification of a Principal Accountant (SAO) and that HMRC would generally not expect an SAO certificate to qualify automatically. due to notification.
Next steps for businesses
With the rules coming into force on 1 April 2022, large businesses should now undertake a review of existing tax positions to determine whether, for each position, they are satisfied that there is no uncertainty by reference to the known position from HMRC. This exercise must be fully documented.
Where there is uncertainty, a review of information already disclosed to HMRC should be carried out – and the results recorded – to determine whether the threshold for exemption from notification has been met. If there is any ambiguity, affected businesses must either engage with HMRC, seek confirmation of the exemption or disclose the uncertainty.