Policy paper

Large businesses: notification of uncertain tax treatment

Updated 19 August 2021

This policy paper was withdrawn on

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Who is likely to be affected

Large businesses – being those with a:

  • turnover of more than £200 million per annum
  • balance sheet total over £2 billion

General description of the measure

This measure will require large businesses to notify HMRC where they have adopted an uncertain tax treatment, as defined by notification criteria set out in legislation.

The proposal is designed to improve HMRC’s ability to identify uncertain tax treatments adopted by large businesses and to accelerate the point at which discussions on uncertain treatment can occur. This requirement will help to reduce tax losses caused by businesses adopting uncertain tax treatments.

Policy objective

The objective is to reduce the legal interpretation portion of the tax gap. Legal interpretation tax losses arise where HMRC and a taxpayer take different views of what the law means, resulting in a different tax outcome, but where there is no avoidance. Sometimes, these differences can take years to identify and resolve, often via litigation which is costly for both taxpayers and HMRC. Longstanding legal interpretation disputes cause uncertainty for HMRC and taxpayers and can undermine trust in the tax system.

This measure aims to highlight and clarify legal interpretation differences earlier, either through notification, or by encouraging more businesses to discuss areas of uncertainty with HMRC before they submit their returns, thereby negating the requirement to notify. Although not exclusive to large businesses, most of the legal interpretation tax gap is attributable to this taxpayer group.

Background to the measure

The government announced at Spring Budget 2020 a consultation on how to implement a regime that will require large businesses to notify HMRC of uncertain tax treatments.

A consultation document was published on 19 March 2020 setting out the framework for the regime and seeking views on a range of implementation issues. The consultation closed on 27 August 2020. The government delayed implementation of the regime by 12 months to allow for a second consultation which took place between 23 March 2021 and 1 June 2021. HMRC have held meetings with large businesses and their representatives to discuss the measure. A summary of responses to the second consultation has been published.

The consultation responses have informed this impact assessment.

Detailed proposal

Operative date

The measure will apply to returns due to be filed on or after 1 April 2022.

Current law

This is new legislation to establish a requirement for large businesses to notify HMRC where they have adopted an uncertain tax treatment. No existing legislation is being revised.

Proposed revisions

Legislation will be included in Finance Bill 2021-22 to define what is:

  • a large business (turnover above £200 million per annum or a balance sheet total over £2 billion or both)
  • an uncertain tax treatment

It will also introduce a threshold of £5 million below which uncertain tax treatments do not need to be notified to HMRC.

The legislation will provide criteria that businesses will need to consider in order to determine whether a tax position is uncertain, and therefore notification is required. It will specify the due date when the notification will be required.

There will be exclusions from the requirement to notify if disclosure is already required under another provision or if HMRC are already aware of the uncertain tax treatment. Certain tax treatments arising from the application of Part 4 (Transfer Pricing) of the Taxation (International and Other Provisions) Act 2010 will also be excluded.

The legislation will apply the regime to Corporation Tax, Value Added Tax and Income Tax (for partnerships, and including amounts collected via PAYE). A £5,000 penalty will be included for failure to notify, along with appeal and reasonable excuse provisions. In addition, there will be an escalating penalty for repeated failures to notify across multiple notification periods.

Summary of impacts

Exchequer impact (£million)

2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025 2025 to 2026 2026 to 2027
Empty Empty Empty Empty Empty Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects large businesses. There is expected to be no impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for those in groups which share a protected characteristic.

Impact on business including civil society organisations

This measure is expected to have, overall, a significant impact on an estimated population of around 2,300 businesses (as of June 2021) who will need to consider whether they have taken an uncertain tax treatment in their returns, and therefore must notify HMRC. However, it is not expected that this impact will fall evenly on all large businesses. Through the second consultation process, the Government has adopted several design changes to reduce the administrative burden and ensure taxpayers have clarity over what is required to comply with the regime.

HMRC will continue to seek specific details of the one-off and continuing costs which are likely to be incurred by large businesses in order to quantify the impact, particularly in light of the changes HMRC have recently made and the range of feedback received on this from stakeholders. This will enable HMRC to understand the extent of any additional processes and actions that businesses will need to implement, which is likely to differ for businesses who already have an open and transparent relationship with HMRC compared with those who do not.

There is not expected to be a significant increase in the administrative burden where a large business is already open and transparent with HMRC, because they will often have already been in discussion with HMRC on the matter and will thereby be exempt from notifying again under this new measure.

One-off costs will include familiarisation with the new regime. Continuing costs could include considering whether transactions are an uncertain tax treatment and if so, whether they are over the threshold, and notifying HMRC when they are.

Customer experience is expected to remain broadly the same because taxpayers with a Customer Compliance Manager or who are open and transparent with HMRC on uncertain tax issues will be exempt from notifying where they have already notified.

For taxpayers without a Customer Compliance Manager, HMRC will utilise their existing Customer Engagement Team to provide a structured opportunity to discuss tax uncertainties, so that they can also benefit from this exemption.

Taxpayers will rely on HMRC’s published guidance to determine HMRC’s known position for the purposes of complying with this measure, so it is important guidance is up to date. Guidance is updated regularly and HMRC are confident the majority of their technical guidance is up to date. In recognition of the increased importance of guidance when UTT is implemented, HMRC will look for further opportunities to improve their technical guidance.

There is expected to be no impact on civil society organisations.

Operational impact (£million) (HMRC or other)

HMRC will need to deploy resource to consider the notifications and caseworkers to enquire into them. The operational impact on HMRC is currently estimated to be £9.29 million across the scorecard.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with large businesses and their representatives.

Further advice

If you have any questions about this change, contact Adrian Morton on 07816 296155 or email: uncertaintaxtreatmentconsultation@hmrc.gov.uk.