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Engage early with HMRC to obtain exemption from the uncertain tax treatment rules

Large businesses are encouraged to provide relevant information to HMRC at an earlier stage to gain exemption from notification under the uncertain tax treatment (UTT) rules. This is a key message in the revised draft guidance which is open for consultation until 1 February. The draft guidance also contains considerable changes to reflect the feedback on the August 2021 draft guidance and to take account of the legislation as it now stands in Finance Bill 2022.

In brief, the UTT rules require large businesses (those with UK turnover above £200 million per annum and/or or a UK balance sheet total over £2 billion) to notify HMRC of a UTT in respect of any amounts in corporation tax, VAT, PAYE and income tax self assessment returns which have filing dates on or after 1 April 2022, unless an exclusion or exemption applies. Where a company is a member of a group, its UK turnover and UK balance sheet totals are aggregated with other 51% subsidiaries and if the aggregated amounts meet one or both of the thresholds, all companies within the group that are liable to UK corporation tax are in scope.

Things have moved on considerably since my blog in July last year.  The legislation included in Finance Bill 2022 contains just two triggers for an amount to be uncertain (where provision has been made in the accounts for the uncertainty and where the tax treatment applied is not in accordance with HMRC’s known position). The third trigger in the July draft legislation (substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in one or more material respects) was omitted from the Finance Bill but the government is considering it further for possible future inclusion. 

The revised guidance is helpful in fleshing out, with examples, how the remaining two triggers will apply. I have concentrated here on the detail of the general exemption and on the “known position” of HMRC.

General exemption

There is a general exemption from notification where it is reasonable for the taxpayer to conclude that HMRC already have available to them all, or substantially all, of the information relating to the amount that would have been included in the notification if it had been required to be given. The draft guidance now explains that information is taken to be available to HMRC if it is provided pursuant to another regulatory requirement (there is a list, which can be amended by the Treasury, of disclosure regimes which constitute regulatory requirements) or in dealings with HMRC.

Where a taxpayer (or their agent) approaches HMRC via the Customer Compliance Manager, if they have one, or through the MSB Customer Support Team for those without, to provide information and discuss an uncertain tax issue, HMRC will confirm whether the general exemption is met. As a matter of good practice, taxpayers should make clear that the discussion is to avoid the requirement to notify and the discussion should be documented. If there are any changes to the transaction or to the tax treatment of it after this discussion, they must be notified to HMRC because such changes would invalidate the exemption.

HMRC’s “known position”

The revised draft guidance provides more detail on what is regarded as HMRC’s known position and which documents do (or do not) indicate this. One significant change from the earlier draft guidance is that explanatory notes and technical notes relating to legislation have moved from the “not to be considered” column to the “contains HMRC’s known position” column. This is a sensible and welcome development.

Any views expressed directly to a particular taxpayer/regarding a particular situation will not apply to other taxpayers/situations.

The draft guidance contains a new section on applications for statutory or non-statutory clearances. If HMRC agree with the tax treatment being proposed by the taxpayer, or disagree with the tax treatment, this expresses a known position of HMRC to the taxpayer applying for the clearance. A clearance application also makes HMRC aware of the uncertainty and so, if the taxpayer treats the transaction in accordance with how it was outlined in the clearance request, it need not notify even if it does not follow HMRC’s known position as the general exemption will be met.

The draft guidance provides that in circumstances where: HMRC do not provide clearance because they do not think there are genuine points of uncertainty; where the arrangements are for the purpose of avoiding tax; where HMRC is checking the tax position for the period in question; or where the relevant return to which the clearance relates is final, HMRC does not express a known position.

It is helpful that HMRC recognises that there is a large volume of published material and that the draft guidance now states that the UTT regime is not intended to “act as a series of tripwires” leading to penalties where a business took a reasonable approach to establishing HMRC’s position. HMRC has discretion over UTT penalties and there is provision for reasonable excuse. Business is expected to have a level of familiarity with HMRC’s published material and factors to be considered to show whether a business took a reasonable approach include whether the guidance is easy to find, e.g. by being in a relevant HMRC Manual; whether HMRC’s published view pops up if a search is done using relevant search terms on the issue; and whether the tax issue is novel, contentious, high-value or high-risk such that a careful examination of HMRC’s view is warranted. In practice, this might mean a greater emphasis on capturing information on the searches conducted and materials reviewed in trying to establish HMRC's view. 

The revised draft guidance is a significant improvement on the earlier draft and goes some way to easing the concerns of business in complying with the new rules. Indeed, it is hoped that in many cases business will be able to rely on the general exemption to avoid notifying under the UTT rules.

Many businesses will want to engage with HMRC early to identify and resolve uncertainties rather than formally notify. Guidance on this is provided from UTT16000 onwards.


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