With effect from 1 April 2022 large businesses will be required to notify HMRC of uncertain tax treatments when it is unclear if the treatment they have adopted will be accepted by the tax authorities. HMRC say that the aim of these new requirements is to promote the early identification and disclosure of tax uncertainties by large businesses to HMRC and to increase the speed in which a business’s tax position can be resolved. Guidance on HMRC’s website can be found here.
The concept of “large” business follows previous definitions used for the purposes of tax regimes such as Senior Accounting Officer.
In brief, a business will be “large” if:
Where a company is a member of a corporate group, its UK turnover and UK balance sheet totals should be aggregated with other 51% subsidiaries for the purposes of determining whether the business is “large” and so within the scope of these rules. Please note the business doesn’t have to be UK incorporated.
Organisations that would otherwise be “large” and subject to the rules are exempted if they are one of the following.
An uncertain amount is only notifiable if the value of the tax advantage exceeds £5 million. This threshold applies to each uncertain amount.
Any return that has an uncertain tax amount is in scope to be notified to HMRC. Companies should asses the below triggers and if one or both triggers are met then they must notify below.
There is no need to notify if HMRC’s position is not known or there is no public guidance available.
If both triggers are met, the business must notify HMRC of the trigger which results in the largest tax advantage. From a VAT perspective, tax advantages could include below.
There are two types of notifications.
Failure to notify HMRC of an uncertain tax treatment may result in a penalty for the qualifying company or partnership:
2nd Failure Penalty
After a company has been assessed to a 1st failure penalty not already incurred a second penalty in the preceding financial years.
After the business has been assessed to a second penalty or further failure penalty in the preceding three financial years.
Specific to VAT returns, the deadline to notify HMRC is on or before the date in which the last VAT return for the financial year is required to be made.
These new requirements add to the existing tax governance/ tax integrity requirements for large businesses. Such organisations will need to amend their existing processes to identify who is responsible for assessing this notification requirement and for those individuals to ensure that they have full visibility of the relevant information needed to make the determination, at the right time. Working with a professional adviser can assist in establishing whether an uncertain tax position arises and, if so, what actions should be taken.
For further information, please contact Robert Marchant or your usual Crowe contact.
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