Notification of uncertain tax treatment by large business

Background

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.

Who does this effect?

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:

• they have a UK turnover above £200 million OR
• have a UK balance sheet total over £2 billion.

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.

• Authorised/unauthorised unit trusts.
• Open ended investment companies.
• Collective investment companies.
• Public bodies.

How do I identify uncertain tax amounts?

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.

1. Probability that a different tax treatment could be applied.
2. The tax treatment in question by the company or partnership, arriving at the amount that could be seen as contrary to HMRC’s known position on the treatment.

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.

• Output tax is less/accounted for late.
• VAT credit obtained.
• Input tax recovered by supply recipient before supplier accounts for output tax.
• Accounting for VAT being avoided.

How to notify HMRC

There are two types of notifications.

1. Engage in a discussion with HMRC early to identify and resolve uncertainties to avoid a formal notification (HMRC encourage this option).
2. Submit a formal notification via a digital form through your business’s government gateway account/Authorised agent account. Please note this is a lengthy form and requires a lot of information to complete the notification.

What are the consequences in failing to notify HMRC, should a tax treatment be deemed uncertain?

Failure to notify HMRC of an uncertain tax treatment may result in a penalty for the qualifying company or partnership:

• not notifying within the time specified
• not submitting a notification when one is required OR
• submitting an incomplete or inaccurate notification.

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.

Summary

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.