Consultation outcome

Technical consultation: Uncertain Tax Treatment (draft guidance)

Updated 28 February 2022

UTT11000 introduction

The aim of Uncertain Tax Treatment (UTT) is to promote early identification and disclosure of tax uncertainties by large businesses in scope to HMRC. Accurate and timely information provides opportunities for HMRC and customers to constructively discuss uncertainties, with the aim of significantly increasing the speed with which the customer’s tax position can be resolved.

Many large businesses already have an open and transparent relationship with HMRC, identifying and resolving tax uncertainties through proactive engagement. HMRC’s commitment to early engagement is strengthened by the Uncertain Tax Treatment regime, by providing an exemption from the notification requirements where relevant information is provided to HMRC at an earlier stage.

The UTT notification requirement levels the playing field, promoting fairness in the system by requiring all uncertain tax treatments to be notified whilst promoting continued engagement with HMRC in an open and collaborative manner.

HMRC’s aim is to encourage businesses to engage early and in real-time as far as possible to obtain exemption. Support will be provided for businesses who engage early by providing assurance when they meet their obligations that they have obtained exemption. Earlier customer engagement is beneficial for all and customers should be encouraged to seek exemption rather than submitting notifications in line with filing deadlines.

Customers seeking exemption will be provided support from Customer Compliance Managers (CCMs) for Large business and the Customer Support Team for Mid-sized Business. HMRC’s aim is to provide assurance to customers that they have provided the appropriate types of information in sufficient detail to achieve exemption. This is distinct from agreeing the tax treatment adopted, although in line with HMRC’s compliance strategy of seeking to work with customers in real-time HMRC will normally aim to give a view on a transaction and/or issue with significant tax implications pre-filing where that is possible.

Where customers who notify formally ask HMRC for early certainty about whether the tax treatment adopted can be agreed, HMRC will assist if possible but will not prioritise this over supporting customers who engage early and seek exemption in good time. Receipt of formal notifications submitted via online form will be automatically acknowledged upon submission, but this will not confirm whether the notification is valid or confirm HMRC’s position regarding the notified uncertainty. HMRC will risk assess notifications and will contact customers depending on the outcome of this risk assessment, prioritising compliance resources to the highest risks

UTT12000 scope

UTT12050 scope overview

UTT applies to large businesses and specific taxes. It applies to both companies (wherever incorporated) and partnerships (wherever formed) that meet the threshold criteria.

Companies or partnerships fall into the UTT regime where they satisfy:

  • a UK turnover above £200 million
  • UK balance sheet total over £2 billion

Where a company is a member of a group, its UK turnover and UK balance sheet totals should be aggregated with other 51% subsidiaries for the purposes of determining whether the large business is within scope.

Example 1

Company A has a UK turnover in the financial year ending 31 December 2023 of £150 million. Company B, a member of the same group as Company A, has a UK turnover in this same financial year of £60 million. For the financial year ending 31 December 2023, the UK turnover of this group totals £210 million - all companies that are members of this group are in scope.

Example 2

Company A has a UK turnover of £300 million in the financial year ending 30 November 2022. Company B’s UK turnover for this financial year is £10 million. For the group, the UK turnover for this financial year is £310 million, which means that the group is in scope and all companies within this group that are liable to UK corporation tax are in scope.

However, had Company A been a 30% subsidiary of the ultimate parent, it would not be in the same group as Company B. Company A is in scope in its own right (as its UK turnover exceeds £200 million) but Company B’s UK turnover is less than £200 million and it is a member of a different 51% group, so all companies in the second group are not in scope.

Example 3

Abacus GmbH is a company incorporated in Germany which has a permanent establishment in the UK. The turnover attributable to the UK permanent establishment in the financial year ending 31 December 2025 is £63 million. Within the same group as Abacus GmbH, B Ltd (a UK resident company) has UK turnover of £154 million for the financial year. In total the UK turnover for this financial year is £217 million, exceeding the threshold and putting the group within the scope of UTT.

Taxes in scope

The taxes within scope of the requirement to notify are Corporation Tax, Income Tax (in a partnership or PAYE return), and VAT.

Corporation Tax includes any amount chargeable under section 330(1), 455 or 464A of CTA 2010 as if it were corporation tax.

Where a group is subject to the Corporate Interest Restriction (CIR) rules, any disallowance is allocated to the company tax returns of group companies, and so treatment of amounts within the CIR calculations are in scope for UTT.

For the purposes of UTT, Corporation Tax does not include:

  • the banking surcharge under s269DA, CTA 2010
  • an amount chargeable in respect of Controlled Foreign Companies under Part 9A CTA 2010
  • the bank levy under schedule 19 to FA 2011

The definition of ‘Corporation Tax’ in paragraph 5(2) includes not only pure Corporation Tax, but also amounts that are deemed to be Corporation Tax.

Examples:

  • Tonnage Tax is deemed to be Corporation Tax (under section 82 of, and Schedule 22 to, FA2000) and therefore within the scope of UTT.
  • section 104A(1) CTA2009 deems research and development expenditure credits (RDEC) to be taxed as trading income, which means that it is liable to Corporation Tax as a part of that trading income. As a result, R&D uncertainties are within the scope of UTT

Digital Services Tax is not deemed to be Corporation Tax. Consequently, it is not within scope of the new notification requirement.

Income taxes included in any other return are not within scope of the regime (for example, Income Tax collected via the CT61 return for taxes deducted at source, or the ORIP income tax charge, which is collected via Income Tax Self Assessment).

UTT12100 turnover and balance sheet

The legislation sets out the criteria that must be met for UTT to apply. This is as follows (paragraph 2):

  • (2) a company is a “qualifying company” in any financial year if, in the previous financial year, the company had either or both of the following:
    • (a) relevant UK turnover of more than £200 million
    • (b) a relevant UK balance sheet total of more than £2 billion

There are specific rules defining the relevant UK turnover and UK balance sheet amount when the company is in a group. The definition of a group for UTT is discussed in UTT12200.

For a company that is not a member of a group at the end of the previous financial year, legislation states:

  • (3) (a) ‘relevant UK turnover’ means the company’s UK turnover
  • (b) ‘relevant UK balance sheet total’ means the company’s UK balance sheet total.

However, if the company was a member of a group at the end of the previous financial year then UK turnover and balance sheet total are widened:

  • (4) if the company was a member of a group at the end of the previous financial year— (a) ‘relevant UK turnover’ means the aggregate UK turnover of the company (‘C’) and any other company that was:

    • (i) a member of the same group as C at the end of C’s previous financial year, and
    • (ii) within the charge to corporation tax on income at any time during C’s previous financial year, and
    • (b) ‘relevant UK balance sheet total’ means the aggregate UK balance sheet totals of C and any such other company

If the financial year of a company that was a member of the same group as the qualifying company does not end on the same date, the figures to include for that company should be drawn from the last financial year that ended before the end of the qualifying company’s financial year.

(6) The Treasury may set regulations that a company of a specific description is not a qualifying company for the purposes of UTT.

‘Turnover’ is considered as its usual definition under the Companies Act 2006 Part 15. ‘UK turnover’ in the legislation for UTT (in paragraph 7(2)) is defined as:

  • (a) in relation to a UK resident company, all its turnover
  • (b) in relation to a non-UK resident company, so much of its turnover as, on a just and reasonable apportionment, is attributable to the activities in respect of which the company is within the charge to corporation tax on income
  • (c) in relation to a UK resident partnership, all its turnover
  • (d) in relation to a non-UK resident partnership, so much of its turnover as, on a just and reasonable apportionment, is attributable to any permanent establishment that it has in the UK

‘Balance sheet total’ in relation to a company or partnership and a financial year is the aggregate of assets shown in the balance sheet at the end of the financial year. “UK balance sheet total” is (in paragraph 7(4)):

  • (a) in relation to a UK resident company, its balance sheet total
  • (b) in relation to a non-UK resident company, so much of its balance sheet total as, on a just and reasonable apportionment, is attributable to the activities in respect of which the company is within the charge to corporation tax on income
  • (c) in relation to a UK resident partnership, its balance sheet total
  • (d) in relation to a non-UK resident partnership, so much of its balance sheet total as, on a just and reasonable apportionment, is attributable to any permanent establishment that it has in the UK

UTT12200 ‘Group’ definition

A company is a member of a group for UTT if another company is its 51% subsidiary, or it is a 51% subsidiary of another company. Two companies are members of the same group if one is a 51% subsidiary of the other or both are 51% subsidiaries of another company.

This meaning of a 51% subsidiary uses the Chapter 3, Part 24 of CTA 2010 interpretation as it applies for the purposes of the Corporation Tax Acts.

An exception to this is where a Qualifying Asset Holding Company (QAHC) has a 51% subsidiary company that it holds as a market value investment. In this scenario, the 51% subsidiary company and any 51% subsidiary of that company can be disregarded as members of the QAHC’s group for the purposes of the UTT legislation.

Although Public Bodies are not within scope of UTT (refer UTT12300), subsidiaries of a Public Body are included, and where there is more than one subsidiary in the group, their turnover and balance sheet amounts must be aggregated to determine whether the thresholds are met.

UTT12300 entities in scope

UTT only applies to large businesses with a UK turnover above £200 million and/or a UK balance sheet total over £2 billion. It applies to partnerships and limited liability partnerships (wherever formed, incorporated, or tax-resident) that satisfy these criteria, as well as corporates (wherever incorporated or tax resident).

Therefore, UK branches and permanent establishments of non-UK resident companies and partnerships are within scope.

Entities must meet the following criteria to be in scope:

  • Paragraph 2(2) - A company is a ‘qualifying company’ in any financial year if, in the previous financial year, the company had either or both of the following:
    • (a) relevant UK turnover of more than £200 million.
    • (b) a relevant UK balance sheet total of more than £2 billion
  • Paragraph 4(3) - A partnership is a “qualifying partnership” in any financial year if, in the previous financial year, the partnership had either or both of the following:
    • (a) UK turnover of more than £200 million; and/or
    • (b) a UK balance sheet total of more than £2 billion

Refer to UTT12100 to quantify the turnover and balance sheet threshold when non-UK resident partnerships and non-UK resident companies are involved.

Exclusions

There will be some entities that will satisfy turnover and balance sheet criteria but are not intended to be in scope. These are excluded from the scope of the legislation rather than certain transactions being exempt.

The Treasury may set regulations providing those partnerships of a specific description are not qualifying partnerships for UTT (paragraph 4(4)).

Authorised unit trusts (AUTs), and unauthorised unit trusts (UUTs) are not within scope because they are not body corporates (paragraph 2(1)). However, open-ended investment companies (OEICs), as defined by Section 613 of CTA 2010, are body corporates but are specifically excluded from scope (paragraph 2(1)(c)).

Similarly, collective investment schemes (CIS) and alternative investment funds (AIF) are partnerships but are specifically excluded from scope (paragraph 4(2)).

Public Bodies do not satisfy the criteria of ‘company’ within paragraph 2(1) and are therefore not within scope. However, if the Public Body has an incorporated subsidiary that satisfies the criteria in paragraph 2(2), that subsidiary is within scope. The turnover and balance sheet of the Public Body is not included when calculating the threshold of the subsidiary because a company is only a member of a group where it is 51% subsidiary of another company, and Public Bodies are not a ‘company’ for the purposes of UTT.

Clarification can be found regarding the exclusions of a ‘company’ in paragraph 2 with paragraph 2(1)(b) and 2(1)(d) confirming specific exclusions for public bodies.

Paragraph 2(1)(b) refers to section 3 of the of the Freedom of Information Act 2000 (FOI provisions include England, Wales and Northern Ireland). A Scottish public authority is defined by the Freedom of Information (Scotland) Act 2002 (asp 13).

Schedule 1 to FIA 2000, clarifies the bodies that are included within the definition as being:

  • government departments, legislative bodies, and the armed forces
  • local government
  • National Health Service
  • Maintained Schools and further and higher education institutions which will also include universities.
  • police
  • other public bodies (this includes a list of individually named non-departmental public bodies)

This covers all relevant sectors in Public Bodies with the exception of housing associations which are covered by including Co-operative and Community Benefit Societies; paragraph 2(1)(d) within the exclusion list which states a registered society within the meaning of:

  • the Co-operative and Community Benefit Societies Act 2014, or
  • the Co-operative and Community Benefit Societies Act (Northern Ireland) 1969 (c. 24 (N.I.))

UTT13000 notification criteria

UTT13050 notification criteria overview

To comply with the UTT rules qualifying companies and qualifying partnerships must notify HMRC if a relevant return delivered to HMRC includes an amount which the legislation calls an uncertain amount.

A notification is required for each relevant return that contains an uncertain amount. This means for example that a company that makes corporation tax, VAT and PAYE returns for a relevant period may be required to make up to 3 notifications for a relevant period. Where a relevant return contains more than one uncertain amount in a relevant period, one notification is required providing details of the different uncertain amounts contained in the return.

An amount may be identified as an uncertain amount where one or both of the 2 notification criteria (also referred to as triggers) are met. Both criteria must be considered to establish whether there is a requirement to notify.

The notification criteria are:

1.Provision made in the accounts (paragraph 10(2)).

The amount relates to a transaction in respect of which a provision has been recognised in the accounts of the qualifying company or partnership, to reflect the probability that a different tax treatment will be applied to the transaction. This includes provisions made or adjusted after the relevant tax return has been filed. Paragraph 30 of the legislation defines “transaction” broadly to include arrangements, agreements, and understandings (whether they are, or are intended to be, legally enforceable).

2.HMRC’s known interpretation of the law (paragraph 10(3))

In arriving at the amount, reliance was placed on an interpretation or application of the law that is different to HMRC’s known interpretation or application.

Subject to the threshold condition (UTT14000) and the exemptions (UTT16000), notification is required where:

  • the entity is within scope of the legislation (UTT12000 to UTT12300), and
  • a relevant return, or amendment to a return, delivered to HMRC includes an amount (including nil) brought into account for the purposes of a relevant tax that is an uncertain amount

The deadlines for notification are set out in UTT15200, the legislation sets out different deadlines for different types of tax return.

Interaction between the notification criteria

The notification criteria definitions do overlap; they are not mutually exclusive. However, it is necessary to consider both notification criteria as where an uncertain amount meets both notification criteria the threshold test is applied to the notification criteria that produces the largest tax advantage (UTT14300) and this is the amount notified (see UTT15100).

Threshold Test

For the purposes of the threshold test at paragraph 11, there is a different definition of “the expected amount” (UTT14300) for each of the criteria. Therefore, it is necessary to identify whether both criteria may apply to the amount in question. Businesses are required to identify and notify the largest tax advantage calculated by reference to the applicable criteria.

Exemptions

The legislation contains several exemptions from notification of uncertain amounts in paragraphs 18 and 19. Guidance for these exemptions starts at UTT16000.

Notification responsibility

The person notifying may vary depending on the type of entity and head of tax/or the type of tax. For notification purposes:

  • for VAT the representative member of a VAT group should notify for the VAT group
  • for other taxes and non-VAT group VAT registrations, each entity is responsible for their own notification. For partnerships, this is the nominated partner.
  • within a CIR group, each entity is responsible for their own notification, even where the entity is not the reporting company for CIR purposes

UTT13100 tax provisions

The first criterion which requires notification is that the amount relates to a transaction in respect of which a provision has been recognised in the accounts of the company or a partnership, to reflect the probability that a different tax treatment will be applied to the transaction. The criterion applies irrespective of where the provision is presented in the accounts.

For the purposes of this criterion, an ‘uncertain amount’ is notifiable if a provision has been recognised in the accounts to reflect the probability that a different tax treatment will be applied to a transaction. Provisions made for other reasons are not notifiable.

For the provision to be a notifiable ‘uncertain amount’, there must be a link between that provision and at least one entry (including nil) on a relevant tax return.

Where a decision to include a provision in a set of accounts occurs after the relevant return has been filed, the deadline for notification is extended, as described in UTT15200.

Example 1

A company prepares both its accounts and company tax return for the year ending 31 December 2022 and concludes that a particular expense is deductible. The company submits its 2022 return to HMRC on that basis. In the next financial year, the company receives further tax advice on that expense and the directors conclude it is probable the deduction included in the 2022 return would not be accepted by the courts if the matter was litigated. When preparing its 2023 accounts the company recognises a provision for the tax deduction included in the 2022 return in respect of the expense. (It is assumed for the purpose of this example that the company does not amend its 2022 return.)

Unless the threshold test at paragraph 11 of the legislation is not met or one of the exemptions at paragraphs 18 or 19 applies, notification is required as a provision has been recognised in the accounts of the company to reflect the probability that a different tax treatment will be applied to the expense. The provision reflects the directors’ conclusion that it is probable the expense would be found to be non-deductible, and this tax treatment is different from the 2022 return, where it was included as deductible.

In the above example, the amount was notifiable because a provision was made to reflect that the correct tax treatment of the amount was uncertain. As the decision to include a provision takes place after the filing of the 2022 CT return, the deadline for notification becomes the CT return due date for the year in which the provision is recognised. The provision is recognised in the year ended 31 December 2023; hence the notification deadline is 31 December 2024.

It is possible that tax provisions made in the company accounts cover a range of related and unrelated amounts (UTT14500). For the purposes of deciding whether the threshold test is met it may therefore be necessary to consider each specific issue provided for and consider which are related or not related.

UTT13200 HMRC’s known position

An amount is notifiable under the second criterion if the tax treatment applied in arriving at the amount relies (wholly or in part) on an interpretation or application of the law that is not in accordance with the way in which it is known that HMRC will interpret or apply the law. (‘known position’).

As with the first criterion, for notification of the uncertain amount to be required, the entity must be in scope, the tax must be a relevant tax, the tax return must be relevant to UTT, the threshold condition must be met, and the exemptions must not apply (UTT13100).

The table below lists the types of publications that do/do not indicate HMRC’s known position for the purposes of this criterion:

Contains HMRC’s Known Position Not to be considered
HMRC guidance, including HMRC’s published technical manuals and customer guidance published on GOV.UK Advice provided via HMRC forums
Statements of Practice Submissions HMRC makes in litigation
Public Notices  
Explanatory and technical notes relating to legislation  
Guidelines for Compliance  
Revenue & Customs Briefs  
Correspondence between the taxpayer and HMRC about transactions covering statutory and non-statutory clearances and other interactions with HMRC on specific transactions  

Sub-paragraph 10(4)(b) of the Uncertain Tax Treatment legislation extends the concept of HMRC’s known position beyond the content of published materials. HMRC’s position may be known from any dealings with HMRC in respect of the business. These may include:

  • discussions with a HMRC Customer Compliance Manager
  • discussions with a HMRC Tax Specialist
  • a written view of the correct tax treatment from HMRC

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

For the purposes of a tax return, it remains the case that the business is responsible for ensuring it has self-assessed in accordance with the law.

Examples

All the examples in this guidance are purely illustrative to demonstrate how the UTT legislation should be applied in practice. The examples are not intended to suggest that uncertainties may be limited to particular industry sectors or particular types of tax issue, nor do they set out HMRC’s current known position. Examples are not exhaustive of the situations where notification is or is not required under this criterion.

Example 1

A qualifying company or partnership develops a new energy saving material designed primarily to be installed in residential housing. Due to its application, and as the energy saving material is of a kind that would normally be considered as qualifying goods, the company are applying VAT on retail supplies of the material at the reduced rate. This is contrary to HMRC’s view of applying the standard rate to any energy saving material that is not also installed as part of the supply.

Unless the threshold test at paragraph 11 is not met or one of the exemptions at paragraphs 18 or 19 apply, notification is required if the business treats the energy saving material as reduced rated, whatever the reasons for that decision.

Example 2

A UK company, which is a member of a multinational group, supplies various administration services to UK and overseas affiliates. The company rewards its employees by a mixture of cash and share options in the listed parent company. The UK company’s profit and loss account includes a debit in respect of the FRS20/IFRS2 amount in respect of the share-based compensation (SBC).

There would be a corresponding increase in equity for equity settled SBC. The company has commissioned a transfer pricing report which concludes that the transactions between the company and its affiliates require to be priced on an arm’s length basis in accordance with Part 4 TIOPA 2010.

The report also includes a full comparability analysis and concludes that the most appropriate transfer pricing methodology to determine the arm’s length price for the services provided by the company is cost plus a margin of 5%. In determining the cost base on which to determine the price charged the company excludes the FRS20/IFRS2 amount and does not substitute an alternative measure regarding the SBC.

HMRC’s published guidance includes page INTM421060 of the International Manual which states ‘Ensuring that the full costs of employing any UK staff are properly reflected in the cost base is potentially more important than the rate of uplift to be applied. This will include the costs of share options where these are made available to the UK staff’ and ‘The usual starting point in determining the cost base would be the accounts prepared under IFRS or UK GAAP. In the example above the charge in the accounts (under FRS20) would be the fair value of the stock options/awards and that would be the most appropriate figure, reflecting the arm’s length charge for providing the share options.

Unless the threshold test at paragraph 11 is not met or one of the exemptions at paragraphs 18 or 19 apply, notification is required if the company excludes any amount in respect of SBC in the cost base used to calculate the arm’s length price for the services it supplies, whatever the reason for that decision.

Example 3

For the purposes of determining whether the Substantial Shareholdings Exemption (SSE) is available on the disposal of shares in a company, it must be determined if the shares being disposed of are shares of a trading company. For these purposes a company is considered to be a trading company if its activities do not include to a substantial extent activity other than trading activities. The legislation does not define ‘substantial extent’ for this purpose.

The phrase “substantial extent” is used in various parts of the TCGA 1992 to provide some flexibility in interpreting a provision without opening the door to widespread abuse. HMRC published guidance in the Capital Gains Manual (CG53116) sets out the HMRC view that, for this purpose, ‘substantial extent’ means greater than 20% of total activities and that the matter should be judged ‘in the round’, using a range of appropriate indicators. Notification would be due if:

  • an alternative approach is adopted; and
  • the notification exemptions do not apply; and
  • the notification threshold will be exceeded

For example, Alpha Limited may consider that HMRC’s interpretation of ‘substantial extent’ is incorrect and that it should mean greater than 50%. If, having considered the matter in the round they conclude that the company invested in was a trading company for the purposes of the SSE despite only 60% of its activities being trading activities notification would be needed.

Where a company or partnership applies for a statutory or non-statutory clearance, HMRC may take one of the following actions (assuming all relevant information has been provided):

  • agree with the tax treatment being proposed by the company or partnership
  • not provide clearance (where HMRC does not think there are genuine points of uncertainty, where the arrangements are for the purposes 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)
  • disagree with the tax treatment being proposed by the company or partnership

The first and third of these bullets express a known position by HMRC to the company which is the subject of the clearance.

HMRC recognises that there is a large volume of published material and 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 the penalty regime contains provision for reasonable excuse. HMRC expects a level of familiarity with its published material, and that a business would want to ascertain whether HMRC is likely to take a different view from the position included in a return.

Factors to consider would include:

  • whether HMRC guidance on the issue is easy to find, for example by being in a guidance manual which is clearly relevant to the matter in question
  • whether a search using relevant search terms finds HMRC’s published view on the issue concerned
  • whether the tax issue concerned is novel, contentious, high-value or high-risk, such that a careful examination of HMRC’s view would be warranted

Changing and updating of HMRC publications

HMRC material is regularly reviewed and updated, and therefore over time HMRC’s known position may change. Any significant changes are initially highlighted by published briefs from HMRC. Guidance manuals are then updated. Each manual includes an updates section highlighting pages that have been altered.

Outdated or contradictory HMRC publications

Occasionally HMRC publications may be out of date or contain conflicting positions. This could be for several reasons, for example:

  • publications are superseded by new publications, but out of date publications may not have been marked as withdrawn or superseded
  • publications not yet properly updated to reflect changes in other publications

There is no requirement to notify HMRC of an uncertain tax treatment under the known position criterion if HMRC’s position is not known. In instances where HMRC’s position is unclear there will be no known position.

Where HMRC’s position is contradictory, the known position is to be taken as the most recently published statement of the known position.

Example 1

Revenue and Customs Brief 9 (2021) was published on 11 June 2021 following a decision in the Court of Appeal. It concerns the VAT liability of day-care services supplied by private bodies in England and Wales. The brief states, ‘Providers who have not accounted for VAT on supply of these services must do so with immediate effect.’ There is no contradictory HMRC guidance dated later than 11 June. Assuming the other conditions are met, notification under UTT will be required if a private body providing day-care services does not account for that VAT after the UTT legislation comes into force.

Example 2

Revenue and Customs Brief 14 (2021) was published on 28 October 2021. The brief states, ‘From 28 October 2021, registered dentists or dental care professionals, or those importing on their behalf, can exempt from VAT the importation of dental prostheses’. If guidance in the VAT manuals contradicted this treatment, but the date that guidance was updated is prior to 28 October 2021, then notification would not be required if the tax treatment followed was in accordance with the Revenue & Customs brief.

A belief by the qualifying company or partnership that the guidance is outdated or wrong will not in itself mean that notification is not required. If the business does not file in line with HMRC’s known position then, assuming the other conditions are met, notification is required, whatever the reason. Recognising that HMRC’s known position differs from the customer’s view of the law may oblige notification, but it does not oblige the customer to alter their self-assessment. It remains the customer’s responsibility to self-assess in line with the law.

Example 3

The Upper Tribunal has dismissed HMRC’s appeal against a decision of the First-tier Tribunal on whether a supply was zero rated under schedule 8 VAT Act 1994.

A business making the same supplies may choose to self-assess for VAT based on an Upper Tribunal decision being the current understanding of the law, but if that tax treatment is not in line with HMRC’s known position (due to a position expressed in a Revenue & Customs Brief, for example) then, if the other conditions are met, notification would still be required under the uncertain tax treatment legislation.

Similarly, in light of the outcome at Upper Tribunal, organisations may choose to protect their positions by making claims for overpaid or under recovered VAT that is not in line with HMRC’s known position, then if the other conditions are met, notification would still be required under the uncertain tax treatment legislation.

Notification under the uncertain tax treatment legislation would be required as HMRC’s ‘known position’ has not changed. It would not be required if HMRC’s published position on the liability of the supply was changed to reflect the outcome at Upper Tribunal.

Factual uncertainties

There will be cases where guidance gives a general HMRC view of a tax issue, but where the real uncertainty depends on the application of that guidance to a set of facts. Where HMRC guidance indicates the types of facts that are relevant these should be considered based on the principles set out in that guidance. Where there is no HMRC guidance on the nature of the facts HMRC considers relevant or there are no principles set out, there is not a clearly expressed ‘known position’ for the purposes of UTT.

UTT14000 threshold test

Paragraphs 11 to 17 of Part 2 of Schedule 15 to Finance Act 2022 set out the procedure for applying the threshold test to an uncertain tax treatment. The following pages provide more detail in relation to how the threshold test is to be applied and whether a notification to HMRC is therefore required, as described in UTT15000.

UTT14100 threshold test overview

There is a requirement for a qualifying company or partnership to notify HMRC of an uncertain tax treatment within the notification deadlines, where the tax treatment meets the notification criteria and the threshold test as set out below.

There will only be a requirement to consider whether the threshold test is met where an uncertain amount is identified by reference to one of the 2 criteria set out in Paragraph 10 of the legislation and as explained at UTT13000. Where at least one of these criteria is met, there is only a requirement to notify if there is a ‘tax advantage’ of £5 million or more. The amount of the tax advantage is determined by a comparison of the uncertain amount with the expected amount. It is therefore important to define these terms clearly, as it determines whether an amount is to be notified to HMRC.

The definition of the expected amount is set out in UTT14300 but is the amount of tax that a qualifying company or partnership would have accounted for if the alternative tax treatment was applied (that is, HMRC’s known position or the position that led to the recognition of a provision).

The threshold test is met where it is reasonable to conclude that the tax advantage a qualifying company or partnership will obtain as a result of bringing the uncertain tax treatment, and any related uncertain amounts, into account will exceed £5 million in the relevant period for the relevant tax.

The £5 million threshold applies separately to each uncertain amount for a relevant period. The relevant period corresponds with the company or partnership’s financial year which will normally be 12 months, although there can be situations where the relevant period is longer or shorter than 12 months with the threshold adjusted proportionately.

Where the tax advantage exceeds £5 million in a relevant period, as explained in UTT14200, the threshold test is met, and a notification must be made by following the notification process outlined in UTT15000, subject to any exemptions from notification explained in UTT16000.

FA22/SCH15/PARA11

UTT14200 tax advantage

The examples in this section are only relevant to the interpretation of the amount of tax advantage and do not have any indicative value in relation to the interpretation of whether any of the notification criteria are met.

Income tax or Corporation Tax

For these purposes a ‘tax advantage’ in relation to income tax or Corporation Tax (CT) includes:

  1. a relief or increased relief from tax
  2. a repayment or increased repayment of tax
  3. avoidance or reduction of a charge to tax or an assessment to tax
  4. avoidance of a possible assessment to tax
  5. deferral of a payment of tax or advancement of a repayment of tax
  6. avoidance of an obligation to deduct or account for tax

CT Example 1 – Land remediation relief

Gamma Ltd carries on a trade of building houses and in the financial year ending 31 October 2022 incurs expenditure of £56 million to remediate land that has been contaminated. Gamma Ltd makes a claim for land remediation relief, which leads to it deducting an additional 50% of the expenditure (£28 million) for CT purposes. However, there is uncertainty over whether some of this expenditure should be excluded from the claim, on the grounds that it does not meet the ‘polluter pays’ principle, which would result in only £26 million of the expenditure being available for a claim (resulting in a tax deduction of £13 million).

The tax advantage is the difference between the uncertain amount of land remediation relief (£28 million) and the expected amount (£13 million). The tax advantage would therefore be the difference of £15 million x the CT rate. If the CT rate is 19%, for example, this would result in a tax advantage of £15 million x 19% = £2.85 million. As the tax advantage is below the £5 million threshold, it would not be notifiable.

CT Example 2 – Corporate Interest Restriction (CIR)

Beta Ltd is the reporting company for a CIR worldwide group. It submits an interest restriction return (IRR) for the period ended 31 December 2022, which shows the total disallowed amount as £3 million. The disallowed amount is allocated to Beta Ltd, and it files its corporation tax return for the accounting period ended 31 December 2022, showing interest expense of £40 million, £3 million of which is disallowed under the CIR rules.

In preparing the IRR, Beta Ltd treated an amount of £50 million as tax-interest income, although this is contrary to HMRC’s published guidance. The effect of this different treatment was to reduce the total disallowed amount by £35m. The amount of interest expense brought into account by Beta Ltd is therefore an uncertain amount. The tax advantage is calculated by comparing the £38 million that would be disallowed using HMRC’s interpretation, with the £3m that has been disallowed in the company tax return. The company pays tax at 19%, so the tax advantage is £35m x 19%, £6.65m. Beta Ltd must notify HMRC of the UTT.

FA22/SCH15/PARA12

FA22/SCH15/PARA14

VAT

For these purposes a qualifying company or partnership obtains a “tax advantage” in relation to VAT if:

  • in a prescribed accounting period, the amount by which the output tax accounted for by the qualifying company or partnership is less, or is accounted for later, than would otherwise be the case
  • the qualifying company or partnership obtains a VAT credit when it would otherwise not do so or obtains a larger credit or obtains a credit earlier than would otherwise be the case
  • in a case where the qualifying company or partnership recovers input tax as a recipient of a supply before the supplier accounts for the output tax, the period between the time when the input tax is recovered and the time when the output tax is accounted for is greater than would otherwise be the case
  • in a prescribed accounting period, the amount of the qualifying company’s or partnership’s non-deductible tax is less than it otherwise would be
  • the qualifying company or partnership avoids an obligation to account for VAT

The term ‘non-deductible tax’ in relation to a qualifying company or partnership tax advantage means: - input tax for which they are not entitled to a credit under Section 25 of VATA 1994 - any VAT incurred which is not input tax and which they are not entitled to a refund by virtue of any provision of VATA 1994

For these purposes, the VAT ‘incurred’ is:

  • VAT on the supply to the company or partnership of any goods or services
  • VAT paid or payable by them on the importation of any goods

The tax advantage calculation in relation to output tax is not to be offset by any input tax credit, either within a VAT registration or between VAT registrations, even where there is a direct and immediate link, or the transactions are within the same corporate group. Similarly, any uncertain input tax treatment should be considered in isolation to any related output tax declared when determining the amount of the tax advantage.

A partly exempt business will submit returns that calculate recoverable input tax on a provisional basis pending their longer period adjustment. The provisional deduction is the correct tax to pay (or claim) at the time those returns are submitted, and as such, any calculation of the tax advantage under UTT for a partly exempt business will be calculated in accordance with the returns due and the declared amounts in the relevant UTT period.

VAT example 1

A qualifying company may be required to consider whether the notification criteria and threshold test are met where it brings a new article of clothing to the market. The business has undertaken a product liability review and although it is uncertain, it considers that the article meets the design test as being clothing designed for young children and it zero rates the product.

The product is successful and total outputs over the 12-month relevant period amount to £36 million. The business has accounted for VAT on the product at the zero rate throughout the relevant period, therefore declared output tax on these supplies is nil. As the amount of output tax that has been accounted for is less than it would have been if the zero rate is found to not apply, then a tax advantage has been obtained.

The business determines that if the article of clothing does not qualify for the zero rate, it will be standard rated. The output tax will be calculated by applying the standard rate VAT fraction to the total consideration of £36 million and as such the tax advantage will be £6 million. This will exceed the threshold and therefore the threshold is exceeded.

VAT Example 2

A UK supermarket is taken to court for trademark infringement by a leading sports brand, for using a logo very similar to the logo on its own labelled sportswear. The court finds in the brand’s favour. The court awards a large financial settlement to the sports brand in compensation for damages (£10m) and the settlement includes the sports brand granting the UK supermarket the right to use the logo officially (£20.5m) going forward. The brand has incurred legal service fees of £0.6m VAT inclusive, directly attributable to the supply of the right to use the branding.

The sports brand reviews published HMRC guidance for the VAT treatment of compensation payments VATSC05910, and notes ‘Whether a [compensation] payment is for a VAT supply depends on whether anything is done in return for consideration’, which it believes the grant of permission for the right to use the brand is, but the guidance also states that ‘recent case law further indicates that a lot of payments described as compensation are actually consideration for supplies… It is only where there is no direct link between a payment and a supply of goods or services that it may be outside the scope of VAT’, which makes it uncertain about the VAT treatment for the award for damages, this also arose from the use of their logo, albeit without their permission.

The sports brand realises that all £30.5m of the award could therefore be within the scope of VAT. This would require output tax declaration of £5.08m, but the sports brand is aware it could recover £100k of input tax on the directly attributable legal services and its output tax would be the supermarket’s input tax to recover (possibly fully).

The sports brand qualifies for consideration under the UTT legislation and due to the amount of uncertain output tax being more than the £5 million threshold for UTT notification (netting off against the input tax on legal fees incurred and the input tax of the supermarket is inappropriate), notification of this uncertain tax treatment to HMRC is required and prepares its submission.

VAT Example 3

Company A is representative member of a fully taxable VAT group and wishes to bring Company B under its group registration to reduce administrative burden arising from supplies between the 2 entities. Company B is also fully taxable and established in the UK.

Company A considers published HMRC guidance that sets out the conditions for VAT group eligibility. The establishment condition for grouping company B is clearly met. The condition that Company A should have control of Company B as its parent as per section 1159 and Schedule 6 of Companies Act 2006 for VAT grouping is less clear. A’s control of B doesn’t precisely meet the criteria set out in Public Notice 700/2 (Group and divisional registration) and HMRC internal manual VGROUPS02150 (Eligibility for VAT group treatment: control conditions).

Both company A and Company B are fully taxable, and all VAT charged between them would be fully recovered if not grouped and all supplies between the 2 would be disregarded under VAT grouping (no net tax effect whether grouped or not). However, if the combined output tax charged by either Company A to Company B (or the reverse) were to exceed £5m in a relevant financial year, given that netting of input tax against output tax is inappropriate for UTT threshold purposes, notification of the uncertain tax treatment to HMRC would be required.

FA22/SCH15/PARA13

FA22/SCH15/PARA14

UTT14300 the expected amount

For the purposes of the threshold test, the ‘expected amount’ will be determined by reference to the specific notification criterion set out in UTT13000. The customer will compare the uncertain amount which they have accounted for, with the ‘expected amount’ when calculating whether the threshold test is met, however the ‘expected amount’ will be approached differently depending upon which notification criterion applies. This could be criteria 1 under sub-paragraph 10(2) or criteria 2 under sub-paragraph 10(3), or both.

Tax provisions notification criterion

Where an amount is uncertain by virtue of the different tax treatment for which a provision has been recognised in the accounts as explained further in UTT13100, the ‘expected amount’ is the amount provided for in the accounts which relates to the uncertain entry in the tax return. Where a provision covers multiple liabilities, of which the relevant uncertain tax treatment is only one of those, the expected amount is the amount of the provision that relates to the uncertain tax treatment.

Example 1

Omega Ltd makes a provision in its accounts for the financial year ending 31 December 2025 in recognition of the uncertainty over the tax treatment of a new product which it has launched into the market, on which the applicable VAT rate is uncertain. The company applies a reduced rate of VAT to this product, but it is uncertain whether it should in fact be standard rated. A provision for £33 million is included in Omega Ltd.’s accounts, which must be notified to HMRC as the tax advantage exceeds £5 million.

Example 2

Delta Ltd incurs expenditure on several repairs to its land and buildings in the financial year ending 31 March 2023. There are multiple uncertainties regarding the tax treatment, including the liability of supplies provided by a fellow group company, whether the expenditure is of a capital or revenue nature for CT purposes, and on whether any of the expenditure qualifies for capital allowances. A provision recognising all these uncertainties is included in Delta Ltd’s accounts for the period ending 30 June 2024. Delta Ltd must consider whether each uncertainty individually is notifiable by reference to the threshold of £5m and the exemptions.

Known position notification criterion

Where an amount is uncertain by virtue of adopting a tax treatment not in accordance with the way in which it is known that HMRC would interpret or apply the law as explained further in UTT13200, the ‘expected amount’ is the amount which will have been derived from adopting a tax treatment in accordance with HMRC’s known interpretation and application of the law.

Where a qualifying company or partnership considers there to be more than one ‘known position’ the expected amount is the amount that produces the lowest tax advantage. As such, if one known position results in a £7 million tax advantage and it is apparent a further known position exists which results in a £3 million tax advantage, there would be no requirement to notify an uncertain tax treatment as threshold test would not be met.

CT example 1

A UK resident company, Alpha Ltd, receives royalty income from several patents it holds, and it issues special shares to Beta Ltd, which is tax resident in the British Virgin Islands, that entitles it to receive an amount equal to all the royalties received in respect of intellectual property.

The accounts of Alpha Ltd show the issue of the shares. The royalty receipt from intellectual property would not be recognised by Alpha Ltd because it has an obligation to pay it out (as the company considers itself not to be the beneficial owner of the income), but HMRC guidance indicates that Alpha Ltd should be taxed on it. Alpha Ltd decides to not include it in its company tax return which is contrary to HMRC’s known interpretation. The expected amount for corporation tax purposes will be the value of the royalty receipts over the relevant 12-month period.

VAT example 1

Where a qualifying company or partnership supplies compressed fruit bars consisting mainly of fruit and nuts, the question is whether they should be standard rated as confectionary under Item Number 2 (Excepted Items) Group 1, Schedule 8 of the VAT Act 1994 or zero rated as cakes under the same provision. The HMRC known position is that they should be standard rated in accordance with Paragraph 4.6.3 of VAT Notice 701/14.

If the business takes the view that the supplies are liable to VAT at the zero rate, a tax advantage will exist. Where total outputs of the fruit bars amount to £60 million in the relevant period, the uncertain amount will be £0, and the expected amount will be £10 million, determined by applying the standard rate VAT fraction to the total consideration received.

VAT example 2

Where a bank provides merchant acquirer services to retailers accepting card payments, the HMRC position is that these are exempt financial services.

If the bank considers the supply to be taxable and this treatment increases the input tax deductible by £7 million in the period compared to an exempt treatment, this will be notifiable as it exceeds the threshold test with an expected amount, and tax advantage, of £7 million.

More than one notification criterion met

Where a qualifying company or partnership meets both the provisions and the known position criteria, and this gives rise to more than one expected amount, the business must consider the tax advantage for both, and notify under the criterion which results in the largest tax advantage, where that tax advantage exceeds the threshold test. This is the case even where under their calculations the first criterion they consider exceeds the threshold test.

Where a qualifying company or partnership considers there to be more than one ‘known position’ (which could include a range of positions) the expected amount is the amount that produces the lowest tax advantage. Where there is more than one known position and the provisions criteria is also met, the qualifying company or partnership must determine the known position that creates the lowest tax advantage and compare that amount with the expected amount for the provisions criteria. Whichever of those amounts produces the largest tax advantage is the criterion under which a notification is to be made, where that largest tax advantage exceeds the threshold test.

Exemption for certain group transactions

There is an exemption from the requirement to notify in relation to uncertain amounts of Corporation Tax (paragraph 5(2)), where the overall tax advantage (considering the group position) is below the threshold. Further explanation of the criteria for the exemption can be found in UTT16300. FA22/SCH15/PARA15

UTT14310 expected amount – losses

There will be circumstances in which there is no tax payable because either there are no chargeable profits, or because chargeable profits are reduced by the availability of other losses or reliefs, such as group relief or losses carried-forward. However, there may be an uncertainty regarding the way in which the losses themselves are calculated – these uncertainties are also within scope of the regime and should be notified to HMRC subject to the same requirements as in all other cases.

However, when calculating the tax advantage, expected amount and uncertain amount, there are differences in the calculation steps and specific rules which should be taken account of.

No account to be taken for group relief or repayments of director’s loans

Where income is included in a relevant return that results in profits chargeable to corporation tax, group relief may be claimed to reduce the amount of Corporation Tax payable (or eliminate the charge altogether).

For the purposes of calculating the expected amount, uncertain amount, and tax advantage, where the amount of income leading to chargeable profits is uncertain, any amount of group relief that is utilised or could be utilised to reduce the profits chargeable to CT is to be ignored.

Likewise, repayments of director’s loans by close companies (s458 CTA 2010) are not to be taken into account in calculating the tax advantage.

Example 1

Company A receives £102 million on which there is an uncertainty over whether the amount should be treated as an exempt capital receipt or as taxable income. The company classifies the amount as an exempt capital receipt in computing its profits chargeable to CT, which results in an overall taxable profit of £86m after accounting for other income and expenses.

Company B (a fellow company within the same 75% group) surrenders £40 million in group relief to Company A, following a qualifying claim. This reduces Company A’s profits chargeable to corporation tax to £46 million. Although the group relief has reduced the amount of tax payable by Company A overall, for the purposes of calculating the expected amount, uncertain amount and tax advantage, it should be ignored.

In this case, the uncertain amount is £0, the expected amount is £102 million and the tax advantage is based upon the difference of £102m. Although group relief is available, for the purposes of calculating the tax advantage, it is not possible to offset this against the amount of the tax advantage.

Uncertain amount and expected amounts are both loss amounts

Where an uncertain tax treatment applies to the calculation or generation of a tax loss for the purposes of income tax or corporation tax, special rules are to apply in quantifying the uncertain amount and expected amounts in calculating the tax advantage for the purposes of the threshold test. The approach to be taken is different depending on whether the loss is fully or partially utilised by the company or partnership.

(a) Where the loss is fully utilised

The uncertain amount is the actual amount of the tax reduction arising from the utilisation of the loss which arises by application of the tax treatment.

The expected amount is the amount of the tax reduction which would have arisen, had the alternative tax treatment applied.

The tax advantage is then the difference between the expected amount of the tax reduction and the uncertain amount of the tax reduction.

This approach is therefore identical to the approach taken where the tax advantage is not a loss amount.

Example 1

Company A and Company B are members of the same 75% group for the purposes of the group relief provisions. In the period ending 31 December 2024, Company A has surrenderable losses of £32 million which is claimed by Company B. Company B has profits chargeable to corporation tax of £45m for this period, so the group relief reduces this to £13 million.

However, in quantifying the losses available for surrender by Company A, there is an uncertainty over the application of Part 8 CTA 2009 to the calculation of non-trading losses on intangible fixed assets. Company A makes a provision in its accounts to recognise the uncertainty, thereby meeting this notification trigger. In this case, the uncertain amount is a £32 million loss and the expected amount is a £ nil loss. The £32 million loss is fully utilised, so the tax advantage is arrived at by applying the additional corporation tax that would be payable by Company B - for example, if Company B pays corporation tax at 19%, the tax advantage would be £6,080,000.

(b) Where the loss is not fully utilised

In circumstances where a loss is not fully utilised, there are 2 elements to calculating the tax advantage:

  • for any amount that is utilised, calculate the tax advantage as above
  • for any unutilised amount of a loss that remains, the tax advantage of this amount of the loss is 10% of the amount of the loss that is unutilised

The total tax advantage is the sum of both amounts

Example 2

Company A and Company B are members of the same 75% group for the purposes of the group relief provisions. In the period ending 31 December 2024, Company A has surrenderable losses of £98 million of which £22 million is claimed by Company B. Company B has profits chargeable to corporation tax of £22 million for this period, so the group relief reduces this to nil.

However, in quantifying the losses available for surrender by Company A, there is an uncertainty over the application of Part 8 CTA 2009 to the calculation of non-trading losses on intangible fixed assets. Company A makes a provision in its accounts to recognise the uncertainty, thereby meeting this notification trigger. The expected amount of the loss is £38 million and the uncertain amount is the difference between the expected amount and the returned loss £98 million - £38 million = £60 million loss.

In this case, the uncertain amount (£60m loss) is only partially utilised, with £22 million being surrendered to Company B. The tax advantage is split into 2 components:

First - the amount of the loss which is utilised (£22m). The tax advantage is arrived at by applying the additional corporation tax that would be payable by Company B to this amount - for example, if Company B pays corporation tax at 19%, the tax advantage would be £4.18 million; and Second – the loss that is unused = £38 million. Applying 10% to this amount the tax advantage is £3.8 million The tax advantage is arrived at by adding the tax advantages calculated for these 2 amounts, which is £7.98m. However, if there is no reasonable prospect of the loss being used to support a claim to reduce a tax liability of any person, then the tax advantage is taken to be nil.

Cases where uncertain amount is a loss, but the expected amount is not a loss

Example 1

In the period ending 31 March 2025, Company A generates a balancing allowance of £57 million on the disposal of plant and machinery for capital allowances purposes. However, this amount is uncertain, and the expected amount is a balancing charge of £10 million. In this scenario, the uncertain amount is a loss whilst the expected amount is not a loss.

The calculation of the tax advantage should follow the same approach as cases where the entire loss is utilised. Here, the difference between the uncertain amount and expected amount is £67 million. The prevailing rate of CT should be applied to this amount to determine the tax advantage, e.g., if the rate of CT is 20%, the tax advantage is £13.4million.

What does ‘reasonable prospect’ mean?

In determining whether there is a reasonable prospect of the uncertain loss being used to support a claim to reduce a tax liability, businesses must follow the same process as applies to the determination of potential lost revenue for penalties for inaccuracies (see CH82370).

FA22/SCH15/PARA14

UTT14400 relevant period

The threshold test is applied to returns submitted to HMRC in relation to the relevant period. The relevant period for each type of return is described below.

Company tax return

Where the relevant return is a company tax return under paragraph 3 of Schedule 18 to FA 1998, or a partnership return within the meaning of TMA 1970, the relevant period over which the threshold test must be applied is the accounting period to which the return relates. Where this is shorter than 12 months, the £ 5million threshold is reduced proportionately.

Example 1 – company tax return

For a company tax return relating to financial year end of 31 December 2024, the relevant period is the 12-month period ending on 31 December 2024 for the purposes of applying the threshold test. A resulting CT notification will then normally be due by 31 December 2025, where applicable.

Example 2 – company tax return with a long period of account

If a company has a long period of account, of say 18 months ending on 31 December 2024, this will be covered by 2 different company tax returns. There will be one return covering the accounting period ending 31 June 2024, and a second return covering the 6 months to 31 December 2024. The relevant periods will correspond to the return periods, with the threshold amount being reduced proportionately for the return covering 6 months to 31 December 2024.

For the purposes of UTT:

  • a company ‘financial year’ has the meaning given by section 390 of the Companies Act 2006.
  • a UK partnership ‘financial year’ means any period of account for which a partnership statement is required under section 12AB of TMA 1970

Partnership return

Where the relevant return is a partnership return, the relevant period is the financial year to which the return relates. For the purposes of UTT, a company ‘financial year’ has the meaning given by section 390 of the Companies Act 2006. For the purposes of UTT, a UK partnership ‘financial year’ means any period of account for which a partnership statement is required under section 12AB of TMA 1970.

Example 1 - partnership tax return

For a partnership tax return relating to financial year end of 31 December 2024, the relevant period is the financial year ending on 31 December 2024 for the purposes of applying the threshold test. A resulting notification will then normally be due by 31 December 2025, where applicable.

Non-annual returns – first year of UTT obligations

For both VAT and PAYE returns, note that in the first year from the introduction of the UTT obligation, there may be some returns within the ‘relevant period’ for which there is no obligation to notify. This will occur where the financial year of the entity concerned straddles 1 April 2022, with some returns for that financial year due before 1 April 2022 (not subject to UTT rules) and some due after (subject to UTT rules). The second VAT example given below illustrates how these will be treated.

The practical effect of this is that where a financial year does straddle 1 April 2022, it is as if the threshold amount were higher. The threshold amount of £5 million is increased or reduced proportionately only if the financial year is not 12 months. So, an 18-month financial year will have a threshold amount of £7.5 million. However, no adjustment to the threshold amount needs to be made if the financial year straddles 1 April 2022.

That means, for example, that a 12-month financial year ending on 31 December 2022 still has a threshold amount of £5 million. But for such a financial year, some VAT and PAYE returns may be due before 1 April 2022, and not subject to the UTT notification obligations. In this example, it may be that 3 out of 4 quarterly VAT returns are subject to the UTT rules. The threshold amount remains £5 million, since the financial year is 12 months, irrespective of the fact that only 3 quarterly returns are within scope of the rules.

Income Tax under PAYE regulations

Where the relevant return is a return under PAYE regulations, the relevant period over which the threshold test must be applied ends on the last day of the latest return period falling wholly within the financial year to which the relevant return relates. The length of the period matches the length of the financial year to which it relates. So, if the ‘financial year’ concerned is actually (say) 15 months, the relevant period is also 15 months. Note that if the relevant period is not 12 months, the £5m threshold is increased or decreased proportionately.

Example 1

If the relevant return is a Full Payment Summary (FPS) for the period ending on 5 December 2024, where the corresponding 12-month financial year ends on 31 December 2024, the period to be considered for the threshold test is the 12-month period ending on 5 December 2024. A business with a monthly payroll will therefore include uncertain tax treatments within the 12 FPS returns within that year. A resulting PAYE notification will be due by 5 December 2024, where applicable.

VAT

Where the relevant return is a VAT return under paragraph 2 of Schedule 11 to VATA 1994, the relevant period over which the threshold test must be applied ends on the last day of the last prescribed accounting period (VAT return period) falling wholly within the financial year to which it relates. In relation to VAT, the ‘prescribed accounting period’ has the meaning given by Section 25(1) of VATA 1994.

The length of the period matches the length of the financial year to which it relates. So, if the ‘financial year’ concerned is actually (say) 18 months, the relevant period is also 18 months. Note that if the relevant period is not 12 months, the £5m threshold is increased or decreased proportionately.

Example 1

If the relevant return is a quarterly VAT return ending on 31 October 2024, where the corresponding financial year is a 12-month period ending on 31 December 2024, the relevant period to be considered for the threshold test is the 12-month period ending 31 October 2024. This will therefore normally cover the 4 quarterly VAT returns submitted to HMRC during that relevant period. A resulting VAT notification will then normally be due by 7 December 2024, where applicable.

Example 2

A business’s 12-month financial year ends on 30 September 2022. Its quarterly VAT returns are Stagger 2 (April), so the relevant return for UTT purposes is the quarterly VAT return ending on 30 July 2022 which is due for submission on 7 September 2022. Notification of UTTs must be submitted by 7 September 2022, the due date for that return.

In the first UTT year, commencing on 1 April 22, the business is not required to look back over all VAT returns submitted in the course of the last 12 months (the 12 months including quarters ending 10/21, 01/22, 04/22 and 07/22). This is because the UTT obligations only start for returns due on or after 1 April 2022. Therefore, in the first year the UTT period for VAT purposes would only include the 2 quarterly return periods 04/22 and 07/22. Note that in this example the £5 million is not reduced, because the relevant period is still 12 months long.

Partial exemption

The UTT reporting year is determined in accordance with the business’s corporation tax year end, but this may not be coterminous with the business’s partial exemption (PE) tax year, and there is no requirement to attempt to align the periods.

The example 2 business’s PE year ends on 30 April 2022 (its financial year ends on 30 September 2022), with the annual adjustment due in the VAT period ending on 31 July 2022 (the PE year runs from 1 May 2021 to 30 April 2022, including the quarters ending 07/21, 10/21, 01/22, and 04/22). When reviewing the UTT position for PE purposes, the business would need to review all provisional recovery calculations as well as any longer period annual adjustment calculation included in returns filed within the UTT period:

  • in year one (to 30 September 2022), whether there is any uncertain PE treatment within the 04/22 and 07/22 returns including the annual adjustment in the 07/22 return
  • in year 2 (to 30 September 2023), whether there is any uncertain PE treatment within the 10/22, 01/23, 04/23 and 07/23 returns including the annual adjustment in the 07/23 return

Further clarification on the notification deadlines in relation to each relevant tax can be found in UTT15200.

FA22/SCH15/PARA16

When assessing whether the threshold test is met, amounts which are related to the uncertain amount must be aggregated for the purposes of this test.

Two or more uncertain amounts are related if:

  • the amounts are included in a return or returns of the same description for the same relevant period
  • the amounts relate to the same relevant tax, and
  • the tax treatment applied in arriving at one amount is substantially the same as the tax treatment applied in arriving at the other amount(s)

When considering whether tax treatments are substantially the same as others, and therefore to be aggregated as related amounts, the qualifying company or partnership will consider whether the uncertain tax treatments are as a result of applying the same reasoning to determine the tax treatments.

We expect a qualifying company or partnership to consider that if the uncertain tax treatment is found to be incorrect, then any other tax treatments that will resultantly also be incorrect, will be aggregated for the threshold test.

Example 1 - VAT

Where the uncertain tax treatment of compressed fruit bars (as referred to in UTT14300 on HMRC’s known position expected amount) relates to multiple different flavours of bars and all are accounted for at the zero rate of VAT, the different flavours will be treated as substantially the same in relation to the threshold test for UTT.
Where strawberry flavoured bars amount to total outputs of £24 million and banana flavoured bars amount to total outputs of £18 million, taken separately neither will meet the threshold test.

As the uncertain tax treatment is substantially the same by virtue of applying substantially the same tax decisions, these should be aggregated with total outputs amounting to £42 million, giving a tax advantage of £7 million.

The threshold test has now been met and a notification should be made, as substantially the same uncertain tax treatment has been applied to the VAT liability of supplies for which the HMRC position is known. If the same business also made retail sales of food that may meet the criteria of hot food under the catering exception, but for which there is an uncertainty when applying the multifactorial tests laid out in the HMRC VAT Food manual, then these supplies will not be aggregated with the compressed fruit bars for the purposes of the threshold test as substantially the same tax treatment.

Although all supplies will be considered in relation to the application of Group 1 of Schedule 8 of the VAT Act 1994, the decisions made to determine the tax treatments are not substantially the same.

National Insurance contributions

Where the relevant return is a return under PAYE regulations, National Insurance contributions (NICs) are to be included for the purposes of determining the aggregate value of the relevant tax advantages mentioned in UTT14200.

Therefore, although NICs are not a relevant tax in scope of UTT, NICs are to be aggregated with the uncertain income tax treatment in determining the expected amount where the NICs treatment is substantially the same as the income tax treatment it relates to.

Example 1 - PAYE related amounts

A company was taken over by a large multinational corporation. As part of the takeover, several high-level executives had their contracts of employment terminated.

All the executives involved had their contracts terminated without notice, and subsequently entered into settlement agreements with the employer. Payments were made to account for outstanding amounts including notice periods and accrued holiday. These payments were subject to Income Tax and NICs deductions in accordance with accepted HMRC guidance and declared via PAYE returns in real time.

In the settlement agreement, relatively small amounts were attributed as taxable compensation for the termination of employment and declared via PAYE. Significantly larger amounts, described in the settlement as compensation for reputational damage, were made to the departing employees without deductions for tax and NICs. Due to the circumstances surrounding the takeover and the negative publicity it received, the company stated that these payments were not for breach of contract or loss of employment, but in response to the damaged reputations of the executives.

The company disagreed with HMRC’s view that payments relating to future losses and reputational damages (as a subset of injury to feelings) are ‘connected with’ the termination of employment and subject to Income Tax under section 401 ITEPA. The company argued that since the payments were made to compensate reputational damage, as a result of the takeover, they were not ‘connected with’ the termination of the employments and therefore not subject to Income Tax.

As this treatment is uncertain and the payment may be within the scope of section 401 ITEPA (and therefore liable to income tax), notification here would be required.

As these amount are earnings for NICs as well as income tax and therefore within the scope of the PAYE regulations - EIM11801, then all NICs relating to these payments would need to be included in addition to Income Tax when calculating the relevant amount.

Example 2 - PAYE and CT-related amounts

Several company directors have set up a new Trust. In lieu of annual bonuses, which the directors were contractually entitled to, the company they work for has agreed to transfer rights to a percentage of the company’s profits to the Trust.

If the company meets certain targets, then a pre-agreed percentage of the company’s profits will be transferred to the new Trust. These profits are not included as part of the business’s taxable profits and as such, no tax is paid on these amounts.

Once transferred, the directors have control of the funds and can dictate how the funds are distributed. Typically, these funds have been drawn down as loans with no repayments made to the Trust.

There are 2 relevant taxes here to consider for possible notification, Corporation Tax in relation to the undeclared profits of the company and Income Tax, in relation to the bonus earnings transferred to the new Trust. If notification criteria are met for both relevant taxes, 2 separate notifications would be required.

When considering the relevant amount for Income Tax, as the National Insurance contribution treatment for earnings is substantially the same as Income Tax, all NICs that would be payable if the amounts transferred were classed as earnings would have to be included in addition to Income Tax when calculating the relevant amount.

FA21/SCH1/PARA17

UTT15000 notification process

Part 2 of schedule 15 to Finance Act 2022 sets out the procedure for notifying HMRC regarding an uncertain tax treatment. The following pages provide more detail on the requirements, time limits and exemptions that apply.

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.

UTT15100 Notification requirement and form

Paragraph 8 obligates a qualifying company or partnership to notify HMRC of an uncertain tax treatment for the financial year that the uncertainty arises.

Notification must be made on or before the filing deadline of a related ‘relevant return’ that is due after 1 April 2022. The notification requirement applies separately in relation to each relevant tax.

Example 1

Alpha Ltd reviews its company tax return for the period ending 31 March 2023. It identifies an uncertain amount with a tax advantage of £7 million, and none of the exemptions are met. As the notification requirements have been met, Alpha Ltd must notify HMRC of this uncertainty by the due date for the CT return, which is 31 March 2024.

Example 2

Beta Ltd is the representative member of a VAT group. During the financial year ending 30 June 2023, several VAT group members make supplies on which the applicable VAT rate is uncertain, and due to the operation of paragraph 17, these amounts are ‘related amounts’, so that the total tax advantage is £53 million.

Although there are multiple entities within the VAT group each making supplies on which the tax treatment is uncertain, as they are all members of a VAT group, the notification requirement applies to the VAT group as a whole and the representative member must therefore notify HMRC of the total tax advantage for the VAT group, by reference to the group VAT registration number. Beta Ltd (as the VAT group representative member) must therefore notify HMRC by the due date for the last VAT return due for the financial year ending 30 June 2023.

Example 3

Kappa Ltd is an employer within a large business group which operates its own PAYE scheme. Delta Ltd is also an employer within the large business group, which operates its own, separate PAYE scheme. In the financial year ending 31 December 2024, Kappa Ltd and Delta Ltd both apply a tax treatment to employee remuneration which meets the definition of uncertain per the legislation and is therefore notifiable to HMRC. Although the nature of the uncertainty is identical in relation to Kappa Ltd and Delta Ltd’s PAYE returns, as the notification requirement applies on a return-by-return basis, they must each submit a notification to HMRC with the appropriate information about the nature of the uncertainty, amount of the tax advantage etc.

Example 4

In Alpha Ltd’s company tax return for the period ending 31 December 2023, an uncertain amount is included which results in a tax advantage of £6 million. Alpha Ltd also operates a PAYE scheme and includes in its PAYE return an uncertain amount which results in a tax advantage of £8 million. Although Alpha Ltd is the same company and has uncertain CT and Income Tax amounts, it must notify HMRC twice – once in respect of the CT uncertainty, and secondly in respect of the income tax uncertainty included in its PAYE return.

Example 5

In the financial year ending 31 October 2023, Sigma Ltd carries out a transaction to which an uncertain tax treatment is applied, resulting in a tax advantage of £24 million. Sigma Ltd also separately applies an uncertain tax treatment to its capital expenditure on new plant and machinery, such that an uncertain amount is included in its company tax return for this treatment, with a tax advantage of £7 million. Whilst both uncertain amounts are amounts of corporation tax included in the same return, they are not related amounts (as they do not rely on the same underlying legal interpretation), and Sigma Ltd must therefore notify HMRC twice – once in respect of the transaction, and secondly in respect of the treatment on capital assets. Administratively however, these amounts can be included on the same notification form.

Please see UTT12300 for further detail on what constitutes a qualifying company or partnership.

Please see UTT14400 for further detail on relevant returns.

When notifying uncertain tax treatments, a financial year is typically:

  • the period covering the company accounts for any company formed and registered under the Companies Act 2006 (or treated as such). For these companies, financial year means the same as in sections 390 to 392 of the Companies Act 2006
  • the period of account covering the Partnership Statement for UK based Partnerships
  • the period covering the Profit and Loss account of any non-UK partnership or any company not formed and registered under the Companies Act 2006
  • where the related relevant return is submitted annually, notification is required on or before the deadline date of the annual return. Otherwise, notification must be made on or before the date on which the last relevant return for the financial year in question is required

Please see UTT15200 for examples of notification deadlines.

As per paragraph 8(4), where a qualifying company or partnership has more than one uncertain tax treatment meeting the criteria for notification, each uncertainty must be notified to HMRC. The requirement to notify also applies separately for each ‘relevant tax’.

In the circumstances where two or more amounts of uncertain tax are ‘related amounts’, only one notification is required for the related amounts. For example, if a company makes regular sales on which the rate of VAT is uncertain, this uncertainty will apply to each transaction that it carries out of this type (assuming all facts and circumstances are equal). The company must therefore aggregate all uncertain amounts for each individual transaction (likewise, it must do so for each expected amount), when calculating the tax advantage. The company then notifies HMRC once, aggregating amounts as they relate to one uncertainty.

Please see UTT14500 for further detail on related amounts.

The requirement to notify is subject to a threshold test, the general exemption as set out in Paragraph 16 and other specific exemptions or exclusions.

Please see UTT14000 for further detail on the threshold test.

Please see UTT15300 for further detail on the general exemption.

Please see UTT16000 for further detail on exemptions.

Notification form specifications

Paragraph 8(6) provides that HMRC can determine the information required in a notification, along with how that information must be given to HMRC and in what form, as specified in a notice published by HMRC.

To notify HMRC of an uncertainty, a qualifying company or partnership can provide details via a digital form which is accessible from within the business’s Government Gateway account. An authorised agent may also notify via the digital form on behalf of the company or partnership. To help HMRC gain an understanding of the uncertainty, the form may require certain details to be completed, including but not limited to the following:

  • company/partnership name
  • tax regime this notification relates to
  • tax reference (E.g. UTR/VAT Registration number/Employer PAYE reference)
  • annual return period or financial year the notification relates to
  • number of uncertainties being notified in this notification
  • return periods affected by the uncertainty
  • UTT Trigger under which disclosure is being made
  • description of the transaction/tax issue type
  • brief explanation of uncertainty
  • brief reference to any relevant statute, case law and HMRC guidance to which the uncertainty relates
  • indication of the amount of tax relating to the uncertainty. Where multiple triggers exist and the potential tax advantages differ, the largest amount should be disclosed.
  • declaration that details are complete and correct, and penalty warning
  • submitted by (individual’s name)
  • capacity submitted in (customer in-house tax team, agent)
  • date of submission

The UTT notification form will be available to access from April 2022 to notify HMRC of any uncertainties relating to relevant returns due after 1 April 2022. Notifications may therefore relate to transactions or tax treatments that occur prior to April 2022.

If a Customer wishes to discuss or notify any uncertain treatments prior to April 2022, the following contact routes should be utilised:

  • for Large Business customers, the matter should be discussed with the customer’s Customer Compliance Manager (CCM) or communicated via the contact us mailbox
  • for customers without a CCM the customer, or their agent, should contact the MSB Customer Support Team by completing the associated contact form. You will be required to provide similar level of detail as would be required in a formal notification

Once received by HMRC, the notification will be treated in accordance with the standards set out in The HMRC Charter. The details of the tax uncertainty will be reviewed to establish any tax treatments that are potentially incorrect. Customers may then be contacted to establish further details of the uncertainty and/or confirm HMRC’s opinion of the applied tax treatment. Once a notification is received, HMRC will confirm whether it considers the notification to have been validly made, or whether further information is required.

UTT15200 notification deadlines

The deadlines for notifying HMRC of an uncertain tax treatment are as follows:

  • where the relevant return is an annual return, the notification must be given on or before the date on which the return is required to be made.
  • where the relevant return is not an annual return, the notification must be given on or before the date on which the last relevant return for the financial year in question is required to be made.
Case
Notification date
Case 1: The amount is a notifiable uncertain amount at the time the return is delivered to HMRC For company tax returns, notification should be made by the later of the last date the return is required to be delivered to HMRC or, if the return period is the same as a period for which the registrar of companies requires delivery of accounts, the last day for the delivery of accounts to the registrar for the period of the return,

For partnership tax returns, notification should be made on or before the last date that the return is required to be delivered to HMRC.

For PAYE returns, on or before the date on which the last PAYE return for the financial year is required to be made.

For VAT returns, on or before the date on which the last VAT return for the financial year is required to be made.
Case 2: The amount is a notifiable uncertain amount included in the return as a result of an amendment Notification must be given within 30 days of the day HMRC is notified of the amendment.
Case 3: The amount becomes a notifiable uncertain amount in a filed return after the return is delivered due to an accounting provision Notification must be given by the same dates as Case 1, but treating the return as being delivered to HMRC:

1. for Company or Partnership returns, as if the return were for the financial year in which the provision is recognised.

2. for VAT and PAYE returns, as if the return were for the financial year after the one in which the provision is recognised.

Please see the examples below which illustrate the notification rules in relation to annual returns, non-annual returns, and accounting period end date changes.

Example 1 (annual return)

Baerlon Ltd is preparing its company tax return for the 12-month period ending 31 December 2021. The company intends to claim capital allowances for capital expenditure incurred in this period. HMRC is known to view these items as non-qualifying expenditure under the Capital Allowances Act 2001. The notification criteria applies because the tax treatment taken by Baerlon Ltd is contrary to HMRC’s known position, and the company must therefore notify HMRC that an uncertain tax amount is being included in its company tax return for this period.

The filing date for the company tax return is 31 December 2022 as the company belongs to a large group. The company must therefore notify HMRC of the uncertain tax treatment on or before 31 December 2022.

Example 2 (Non-annual return)

Kamfite Ltd.’s financial year runs from 1 December – 30 November. In January 2022, Kamfite entered into a transaction which resulted in an uncertain amount being included in its Full Payment Submission (FPS) return for the return period ending 30 November 2022. In recognition of this, Kamfite included a £8 million provision in their accounts for this period in recognition of the potential additional tax liabilities. The notification criteria both apply, and the company must therefore notify HMRC that its PAYE return includes an uncertain amount of Income Tax.

As the end of the relevant financial year for Kamfite’s FPS return is 30 November 2022, the company must notify HMRC on or before the last relevant PAYE return of the year. Kamfite Ltd pays its employees on the 25th day of each month and files its FPS on the same day. Kamfite Ltd submits an FPS return on 25 November and no further submissions under PAYE regulations are due prior to the end of the company’s financial year. Therefore, Kamfite Ltd must notify HMRC of the uncertain tax treatment on or before 25 November 2022.

Example 3 (non-annual return)

A company provides healthcare services for which there is uncertainty about whether the services qualify for the VAT exemption (in relation to considering the application of the principal purpose test).

The company’s financial year follows the calendar year, with the business submitting their VAT returns quarterly. The final VAT return due that falls within the calendar year is the period ending 31 December 2022, with the return due for submission by 7 February 2023.

Therefore, where a UTT notification is due, the business must notify HMRC of the uncertain tax treatment on or before 7 February.

Example 4 (Non-annual return)

‘A large employer decides to incentivise its employees by providing a monthly delivery of confectionary via subscription with a third-party. The subscription is not annual and it can be cancelled at any point in the tax year. The confectionary costs £7.50 per month per employee.

EIM21864 sets out the qualifying conditions that determine whether or not a benefit provided to an employee is exempt from tax as a trivial benefit. One of the conditions that has to be satisfied is that the cost of providing the benefit does not exceed £50. As all other conditions of the exemption for trivial benefits are met and the employer considers this provision to be a single benefit provided each month with a cost of £7.50, the employer does not consider the benefit to be taxable.

The employer accepts that this approach may not be in line with the guidance at EIM21865 on calculating the cost of a trivial benefit. However, as the employer maintains that each monthly provision can be deemed a separate benefit, they do not believe that the total annual cost needs to be considered.

As all other notification criteria also apply, the company must notify HMRC that an uncertain tax treatment is being undertaken.

The company does not payroll benefits, so any benefits-in-kind provided to their employees would need to be declared to HMRC by 6 July.

The employer has a year-end date of 31 October. They pay all their employees monthly on the last calendar day of the month with a Full Payment Submission (FPS) submitted on the same day. Other than FPS submissions, no other PAYE returns were filled, or due to be filled, after 6 July.

The deadline for notifying HMRC of an uncertain tax treatment is the date the last relevant return under PAYE regulations must be made by the company. In this scenario, the last return would be the October FPS submitted on 31 October. Therefore, the building company must notify HMRC of the uncertain tax treatment on or before 31 October.’

Example 5 – Change of company year-end (financial year is more than 12 months)

Following a takeover in late 2020, a limited company looked to change its financial year to match that of its parent company.

The subsidiary company’s financial year ran from 1 August – 31 July. The parent company’s financial year runs from 1 January – 31 December.

Following the takeover, the limited company extended its financial year to run from 1 August 2020 – 31 December 2021. This financial year was therefore extended from 12 months to 17 months. As a Corporation Tax (CT) return can only cover a maximum period of 12 months, during the extended financial year, two CT returns are due.

During the period of 1 August 2020 – 31 December 2021 the notification criteria was met in relation to an uncertain tax treatment resulting in a potential underpayment of Corporation Tax.

The accounting periods for Corporation Tax for this financial year were 1 August 2020 to 31 July 2021 and 1 August 2021 to 31 December 2021. The filing deadlines for these returns are both 31 December 2022 respectively.

These two annual returns create two notification points during this extended financial year. The deadline for notification(s) is dictated by the facts at hand.

If the relevant notification criteria have been met in relation to transactions occurring between 1 August 2020 – 31 July 2021 the deadline for notification is 31 July 2022.

If the relevant notification criteria are not met until the following return period, 1 August 2021 – 31 December 2021, then the deadline for notification becomes 31 December 2022.

Example 6 – Change of company year-end (financial year is less than 12 months)

In early 2021, the parent company in the above scenario purchased a second company. This new company had a financial year running from 1 April – 31 March.

Following the company purchase, for the 2021 financial year, the company shortened its accounting period so it could match the accounting period of its new parent company for subsequent years.

The new accounting period for the company became 1 April 2021 – 31 December 2021.

As part of a full processes review undertaken post takeover, the company realised there was an uncertain tax treatment in relation to Income Tax for its employees. The deadline for notification is ‘on or before the date on which the last relevant return for the financial year in question is required to be made’. In this instance, the deadline becomes the last relevant PAYE return due for submission on or before 31 December 2021.

UTT15300 Failure to notify

Failure to notify an uncertain tax treatment may result in a penalty for the qualifying company or partnership. Please see UTT17000 for further detail on penalties for failing to notify uncertain tax treatments.

UTT15400 Interaction of notification with Business Risk Reviews and Senior Accounting Officer certificates

For customers dealt with by HMRC’s Large Business directorate for whom Business Risk Reviews are undertaken, there is no direct read across from a notification being made to a risk rating. This means for example that making a notification does not automatically mean a business cannot be low risk. However, it is important to consider the nature of any notification, or notifications, and what it is indicating about a customer’s approach to tax compliance and engagement with HMRC in line with the Low Risk Criteria in TCRM3660. HMRC expects low risk businesses to discuss transactions or issues with significant tax implications in real time and to manage communications with HMRC collaboratively.

For customers within the Senior Accounting Officer (SAO) reporting requirements, if there is a UTT issue and it is unresolved at the time an SAO certificate is due it is unlikely to have any consequences on SAO certification. The primary focus of SAO is ensuring companies have effective accounting processes in place, whereas UTT is identifying specific uncertain transactions. HMRC wouldn’t ordinarily expect an SAO certificate to automatically be qualified due to a UTT notification.

UTT16000 Exemptions

UTT16100 Exemptions Overview

These exemptions apply to companies and partnerships that are within scope of UTT. They exclude specific uncertain tax treatments from the requirement to notify. The entities will still have to notify other uncertain tax treatments that do not fall within these exemptions.

UTT16200 General Exemption

UTT legislation (paragraph 18(1)) states:

‘A company or partnership is not required by paragraph 8(2) to notify HMRC about an amount included in a relevant return if it is reasonable for the company or partnership to conclude that HMRC already have available to them all, or substantially all, of the information relating to that amount that would have been included in the notification if it had been required to be given.’

Information is taken to be available to HMRC (paragraph 18(2)) if it is provided:

  1. by another regulatory requirement, or
  2. in dealings with HMRC.

Another regulatory requirement

HMRC may become aware of the uncertainty due to other regulatory requirements to disclose or provide information (paragraph 18(2)(a)). If a business provides information under these other regulatory requirements, they will be exempt from notifying under UTT.

The Treasury may amend the list of other regulatory obligations, but they currently are:

  1. Schedule 11A to VATA 1994 (disclosure of avoidance schemes);
  2. Part 7 of FA 2004 (disclosure of tax avoidance schemes);
  3. Schedule 17 to FA 2009 (international movement of capital);
  4. Schedule 17 to F(No.2)A 2017 (disclosure of tax avoidance schemes: VAT and other indirect taxes); or
  5. regulations under section 84 of FA 2019 (international tax enforcement: disclosable arrangements).

Dealings with HMRC

If HMRC is already aware of the uncertainty and how the business plans to treat it, then the business need not bring it to HMRC’s attention through the notification process.

The exemption applies per ‘amount’. Therefore, there may be more than one ‘uncertain amount’ (paragraph 10(1)) in a return (paragraph 8(2)(a)) or relating to a return (paragraph 8(2)(b)) that satisfies the criteria to notify. The exemption must be considered separately to the amounts and may be satisfied for one ‘amount’, but not the other. For example, the business may have discussed with HMRC the uncertainty of deductibility for one item, but not regarding the deductibility for another unrelated item. The exemption would not apply to the latter.

It is common for large businesses to engage with HMRC on areas of uncertainty. This often occurs through the Customer Compliance Manager (CCM) for those businesses with a CCM. Businesses without a CCM can initiate pre-notification conversations with the MSB Customer Support Team via the link on GOV.UK.

Both CCMs and the MSB Customer Support Team will draw on the support of tax specialists, data analysts, solicitors, audit specialists, trade sector experts, forensic accountants and others where required to help businesses understand if they are required to notify.

The discussion should include all or substantially all the information that would otherwise be provided in a notification UTT15100.

To avoid uncertainty as to the application of the exemption, we would recommend that taxpayers make clear that the discussion is to avoid the requirement to notify, and the discussion is documented.

The onus is on the qualifying company or partnership to draw attention to any amounts or details. This is particularly true if there is some doubt as to the interpretation of that information. It is not sufficient for a company or partnership to simply to provide the information if:

  • it is hidden away, or
  • it is obscure.

Confirmation by HMRC that the exemption is met

Where a business (or their agent) approaches HMRC, via the CCM or the MSB Customer Support Team, to provide information and discuss an uncertain tax issue, HMRC will confirm when the general exemption has been met. In some cases, it may require some dialogue to fully explore the issues and ensure HMRC is in possession of all (or substantially all) of the information that would be provided in a formal notification.

It is also essential that, if there are any changes to the transaction itself, or to the tax treatment of it after discussion has taken place, that these are notified to HMRC. Changes to the underlying transaction or tax treatment of it would invalidate the exemption.

Clearances and the general exemption

HMRC may also become aware of the uncertainty through the non-statutory clearance process. If the business treats the transaction in accordance with how it was outlined in the clearance request, then it need not notify. However, if there is a change in either the transaction(s) covered by the clearance or their treatment for tax purposes, the business will need to inform HMRC of these changes for the general exemption to be met.

The Banking Code and the general exemption

Banks that are signatories to the Banking Code of Conduct may make an approach to HMRC to discuss the application of the Code to a transaction in real time. Where they do so, they will not be required to notify if discussions with HMRC around the uncertain tax treatment meet the criteria for the general exemption UTT15310.

If the bank chooses to discuss with HMRC an uncertain tax treatment under the Code, and all the information has been provided in these discussions, the general exemption UTT15310 would apply, and the bank would not need to notify the uncertainty under UTT.

Uncertainties discussed with HMRC before the introduction of UTT

For uncertainties included in returns due on or after 1 April 2022 but which are notified to HMRC prior to 1 April 2022 (e.g. via discussion with a CCM), customers do not need to notify again after the regime comes into effect.

Customers should aim to indicate to HMRC in pre-April 2022 interactions that they are seeking to satisfy the requirements and to meet the general exemption. In cases where customers engage with HMRC before UTT is implemented, a record of the interaction should be held as evidence of the disclosure having been made. Where possible, it would be beneficial for this to be shared with HMRC to avoid future enquiries.

Example 1

During a regular call with a Customer Compliance Manager, a company shared details relating to Research and Development Expenditure Credit (RDEC) claims they were making for several R&D projects the company had undertaken. The company had uncertainties that some of the projects undertaken met the criteria to count as a R&D project, as they were contrary to HMRC guidance.

Following the call, the customer provided further details as per the request of the CCM to enable further consideration of the claim.

The CCM provided confirmation of what claims HMRC considered to qualify as R&D and which costs could be included. However, the company felt that the projects did qualify as R&D and claimed on the basis they set out to their CCM.

In this scenario the general exemption has been met because the company told their CCM all the necessary information relating to the uncertainty and how they proposed to treat it.

Example 2

A property development company asks the CCM to confirm that the VAT option to tax will not be disapplied if the building is rented out. Later, the intended occupier changes and it is arguable that they could be regarded as a financer of the development for the purposes of the option to tax disapplication rules.

In this scenario the general exemption has not been met. The company did not make available to HMRC the information about the new occupier and that they could be potentially regarded as a financier of the development for the purposes of the option to tax disapplication rules, being information that would have been included in the notification if it had been required to be given.

Example 3

A customer contacts the HMRC Mid-sized Business Customer Engagement Team through the Government Gateway identifying that it wishes to discuss an issue where Uncertain Tax Treatment might apply and would like to discuss this seeking to satisfy the general exemption. A Mid-sized Business tax specialist is appointed to discuss the matter.

Following an exchange of correspondence, the customer provided further details at the request of the tax specialist for further consideration of the issue. The tax specialist provided confirmation of HMRC’s position which differed from the view of the customer’s advisers. The company decided to proceed on the basis as originally set out.

In this scenario the general exemption has been met because the company has provided HMRC with all the necessary information relating to the uncertainty and how it proposed to report that uncertainty in its return.

UTT16300 Certain group transactions

Paragraph 19 of the legislation provides an exemption from the requirement to notify in relation to uncertain amounts of Corporation Tax (paragraph 8(2)), where the overall tax advantage (considering the group position) is below the threshold.

A second condition (sub-paragraph 19(b)) must be met in addition to the conditions in sub-paragraphs 19(a) and 19(c), for this exemption to apply. This condition is that there are two or more companies, who are members of the same group (as defined by paragraph 3), transacting with one another.

“Transaction” is defined in paragraph 30. Where this condition is met, and there is an uncertain amount of corporation tax (as required in sub-paragraph 17(a)), taxpayers must then consider whether the third and final condition in sub-paragraph 17(1)(c) is met in order to determine whether this notification exemption applies.

This condition is that the net effect of the transaction across the group (as defined in paragraph 3) results in a tax advantage that is below the threshold.

Example 1

Company A sells a building with a base cost of £20 million to Company B for market value of £60 million. Shortly afterwards but in the same accounting period, Company B sells the property to an unrelated party for £70 million. On the basis that the companies are within the same capital gains group, they apply the rules at Section 171 TCGA 1992 such that Company B acquires the property at no gain/ no loss from Company A. Company B recognises a £50 million gain (£70 million less base cost of £20m) when it sells the property, creating a CT charge of £9.5 million (£50 million X 19%).

A provision is recognised in the accounts in respect of this sale due to the uncertainty that s171 may not apply to the transfer from Company A to Company B, and Company A recognises a gain of £40 million (£60 million - £20 million), creating a provision in recognition of a potential charge of £7.6 million (£40m million X 19%). Company B recognises a provision of £10 million (£70 million - £60 million), based on a potential CT charge of £1.9 million (£10 million X 19%).

Although the tax advantage to Company A arising from the uncertain tax treatment is £7.6 million (the amount of the provision), as the overall tax advantage to the group is £0 (comparing the uncertain amount of Company A and B (£9.5 million) with the expected amounts in Company A and B (£7.6 million + £1.9 million), this falls below the £5 million threshold and the exemption is met.

UTT17000 Penalties

UTT17110 Penalties Overview

We expect there to be strong compliance with the uncertain tax treatment (UTT) provisions. HMRC’s Large Business Customer Compliance Managers (CCMs) and Mid-sized Business Caseworkers will consider this as part of their overall risk assessment of companies. However, if there are failures, Part 3 of Schedule 15 to Finance Act 2022 provides for a penalty to be chargeable if a qualifying company or partnership is required to give a notification and fails to do so. This covers:

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

A penalty will not be charged where there is a reasonable excuse for the failure to comply with the legislation, see UTT17200.

Whilst a person will be liable to a UTT penalty in the circumstances described above, HMRC has discretion over whether to assess that penalty. That discretion is conferred by Paragraph 23, which states that if a person becomes liable to a penalty, HMRC ‘may assess’ it.

A decision to assess a penalty should take account of all relevant facts, including the nature of the failure and the inherent compliance risk of the business concerned.

A CCM or a caseworker must record the reasons behind any consideration of whether or not to assess a penalty and ensure that this is stored for future reference.

If you conclude that it would be appropriate to exercise HMRC’s discretion to not assess a penalty, you should explain to the customer:

  • why they were liable to a penalty in the first place.
  • the factors you have taken into account in considering whether or not to assess the penalty.
  • your reasons for exercising discretion to not assess the penalty.
  • the steps they need to take to fully comply in future.

The penalty follows a failure to meet a notification requirement and is chargeable on the person (the company or partnership) required to make the notification. In cases of difficulty, CCMs or caseworkers should contact their nominated business contact for advice.

FA22/SCH15/PARA20

FA22/SCH15/PARA21

UTT17120 Types of penalty

A single penalty is chargeable in respect of a notification requirement. Where there are multiple failures in respect of a notification requirement only one penalty is chargeable.

The penalty amount varies according to whether it is:

  1. a first failure, resulting in a penalty of £5,000, where the company or partnership has not, in any of the preceding three financial years, been assessed to a notification penalty in respect of the same relevant tax.
  2. a second failure, resulting in a penalty of £25,000, where the company or partnership has been assessed to a first failure notification penalty and not already incurred a second penalty in the preceding three financial years in respect of the same relevant tax.
  3. a further failure, resulting in a penalty of £50,000, where the company or partnership has been assessed to a second penalty or further failure penalty in the preceding three financial years in respect of the same relevant tax.

The table below illustrates how the first failure, second failure and further failure penalties operate.

Financial Year En VA Corporation Tax PAYE Income Tax Self-Assessment
30/09/2023 First Failure Penalty £5,000 First Failure Penalty £5,000 Notification requirements met No notification required
30/09/2024 Notification requirements met Notification requirements met Notification requirements met No notification required
30/09/2025 Second Failure Penalty £25,000 Notification requirements met First Failure Penalty £5,000 No notification required
30/09/2026 Notification requirements met Notification requirements met Notification requirements met No notification required
30/09/2027 Further Failure Penalty £50,000 Notification requirements met Notification requirements met No notification required
30/09/2028 Notification requirements met First Failure Penalty £5,000 Second Failure Penalty £25,000 No notification required
30/09/2029 Notification requirements met Notification requirements met Notification requirements met No notification required
30/09/2030 Further Failure Penalty £50,000 Second Failure Penalty £25,000 Notification requirements met No notification required

If a penalty is chargeable that is the amount of the penalty. There is no reduction available for any reason.

If there has been a failure but there is a reasonable excuse for the failure, there will be no penalty. However, there can be no reasonable excuse for a notification failure that results from careless or deliberate behaviour.

UTT17130 In what circumstances is a penalty chargeable

The guidance below sets out the circumstances in which a penalty may become chargeable, together with examples.

Not notifying within the time limit

Where a notification is due, a qualifying company or partnership is required to submit it by a specified time (see UTT15200). The business is liable to a penalty when a notification is submitted late. However, HMRC has some discretion whether to charge that penalty.

Example 1

A qualifying company has a company tax return filing date of 31 December 2022. It has uncertain tax positions in respect of corporation tax which need to be notified. It has until 31 December 2022 to submit its UTT notification in respect of corporation tax but does not submit its UTT notification until 15 January 2023. The failure occurs on 1 January 2023, but HMRC is not aware of it until 15 January 2023.

Example 2

A qualifying company has a financial year ending 31 December 2022. It has uncertain tax positions in respect of VAT which need to be notified. It is required to submit its final VAT return for the financial year ending 31 December 2022 by 7 February 2023 but does not submit its UTT notification until 28 February 2023. The failure occurs on 8 February 2023, but HMRC is not aware of it until 28 February 2023.

Not submitting a notification when one is required

Where a business has uncertain tax positions which create a requirement to notify, but it does not do so, the business is liable to a penalty. However, HMRC has some discretion whether to charge that penalty.

Example 1

A qualifying company has a company tax return filing date of 31 December 2022. It has until 31 December 2022 to submit its UTT notification in respect of corporation tax but does not submit a UTT notification. HMRC opens an enquiry into the company tax return and on 30 September 2023 identifies an issue which should have been notified. The failure occurs on 1 January 2023, but HMRC is not aware of it until 20 September 2023.

Example 2

A qualifying company has a financial year ending 31 December 2022 with a VAT return period ending on 31 December 2022 (Q4). It has until 7 February 2023 to submit a notification for the financial year ending 31 December 2022 but does not submit a UTT notification. The failure occurs on 8 February 2023, but HMRC is not aware of it until 28 February 2023.

Submitting an incomplete or inaccurate notification

Where a business has uncertain tax positions which create a requirement to notify, it must provide complete and accurate information in the form specified by HMRC. Where it doesn’t provide complete and accurate information, a penalty is chargeable. This is because the business had not provided a valid notification that contained all the required information. However, HMRC has some discretion whether to charge that penalty.

Example 1 A qualifying company submits a UTT notification in respect of PAYE on time, providing details of one uncertain amount. HMRC undertakes a compliance check into the PAYE return and identifies that an additional uncertain amount should also have been included in the single notification. The notification that was made is incomplete and a penalty is chargeable.

UTT17300 Assessing a penalty

Once the penalty has been authorised, the CCM, MSB Customer Support Team or Caseworker should assess the penalty, and notify the person assessed in a letter. The notice of the penalty assessment must be addressed to the person on whom the penalty is chargeable

  • tell the person what they must pay, and by when
  • tell the person about their rights to appeal and review
  • include payment instruction - this links the payment of their penalty to the correct charge recorded in the HMRC accounting system.

A copy of the penalty notice will be sent to any authorised tax representative dealing with the specific tax or issue.

Penalties imposed on partnerships will be addressed to the nominated partner, but the penalty is in respect of the partnership and will not be a personal liability of the nominated partner.

UTT17320 Time limit to assess a penalty

An assessment of a penalty for a notification failure in respect of an annual period may not be made later than:

  1. 6 months after the failure or inaccuracy first comes to the attention of an officer of Revenue & Customs, or
  2. 6 years after the end of the financial year in which the notification should have been given.

A notification failure may come to HMRC’s attention when a notification is submitted late.

Example 1

A qualifying company has a company tax return filing date of 31 December 2022. It has uncertain tax positions in respect of corporation tax which need to be notified. It has until 31 December 2022 to submit its UTT notification in respect of corporation tax but does not submit its UTT notification until 15 January 2023. As the notification was given after the statutory filing date for the relevant return, the company is liable to a penalty unless they had a reasonable excuse. The penalty must be issued within 6 months (15 July 2023).

Example 2

A qualifying company has a financial year ending 31 December 2022. It has uncertain tax positions in respect of VAT which need to be notified. It is required to submit its final VAT return for the financial year ending 31 December 2022 by 7 February 2023 but does not submit its UTT notification until 28 February 2023. Therefore, the penalty must be assessed by 28 August 2023.

Example 3

A qualifying company has a company tax return filing date of 31 December 2022. It has until 31 December 2022 to submit its UTT notification in respect of corporation tax but does not submit a UTT notification. HMRC enquires into a subsequent company tax return and on 12 September 2028 becomes aware that an uncertain amount should have been notified for previous years including in respect of the company tax return due by 31 December 2022. The six-year rule applies meaning HMRC has until 31 December 2028 to assess a penalty in relation to the filing date of 31 December 2022.

UTT17330 Penalty assessments

Once a penalty has been approved, the Customer Compliance Manager (CCM), MSB Customer Support Team or Caseworker must promptly assess the penalty.

This assessment will be on the company or partnership that did not notify an uncertain amount.

The notice of the penalty assessment must:

  • be addressed to the person on whom the penalty is chargeable
  • tell the person what they must pay, and by when
  • tell the person about their rights to appeal and review.

A penalty payable by a company is enforceable as if it were corporation tax charged in an assessment. A penalty payable by a partnership is enforceable as if it were income tax charged in an assessment.

UTT17340 Penalty assessments – details

A penalty assessment is raised against a company or partnership through the HMRC Strategic Accounting Framework Environment (SAFE).

The Customer Compliance Manager (CCM), MSB Customer Support Team or Caseworker must supply details of the charge to the local SAFE Nominee. There is no specific form for supplying this information, but the following details are required:

  • the unique taxpayer reference (UTR)
  • the name of company or partnership (as appropriate)
  • the address.
  • the date of assessment
  • the period for the charge (the financial year)
  • the charge type - ‘Sch 1 FA 22 UTT Penalties’
  • the amount of the penalty.

SAFE input must be completed before the notice of the penalty assessment is sent out. This is because the CCM, MSB Customer Support Team or Caseworker must ask the SAFE nominee to provide the SAFE accounting reference number.

Once a decision has been made to cancel a penalty assessment the Customer Compliance Manager (CCM), MSB Customer Support Team or Caseworker must supply details of the change to the local SAFE Nominee.

There is no specified form for supplying these details, but they should include the details provided at the time the penalty assessment was raised together with the instruction to cancel.

The CCM, MSB Customer Support Team or Caseworker must send a letter to notify the person that the penalty has been cancelled. In cases where the penalty has already been paid by the person, the CCM, MSB Customer Support Team or Caseworker must notify the local SAFE Nominee, either:

  • requesting that a repayment is made to the person, or
  • advising that the person has requested that the amount be left on account with HMRC.

UTT17500 UTT Appeals

The UTT appeals follows that of the direct taxes guidance on the appeals and reviews process, which is contained in the Appeals Reviews and Tribunals Guidance (ARTG) manuals (ARTG2010 and ARTG2100+ respectively).
An appeal may be made by the persons listed in ARTG2150, as for all other direct tax appeals if there is a reasonable excuse for not making the return by the deadline. There is comprehensive guidance regarding reasonable excuse at CH160000.

If you have any questions or comments regarding the draft guidance, please contact: uncertaintaxtreatmentconsultation@hmrc.gov.uk