Qualitative research to evaluate the notification of uncertain tax treatment policy

Question 1

1. Executive Summary

Accepted Answer

1.1 Overview of the research and aims

His Majesty’s Revenue and Customs (HMRC) has a strategic objective to collect the right tax, a key aspect of which is closing the tax gap. A substantial portion of the tax gap (10% or £3.9 billion in 2022 to 23) is a result of legal interpretation issues ^{[footnote 1]}.

To reduce the legal interpretation portion of the tax gap, there is now a requirement for large businesses to make HMRC aware, at an early stage, that they have adopted an Uncertain Tax Treatment , for Corporation Tax, Income Tax (including payroll), and Value Added Tax, where the tax difference in treatment exceeds £5 million.

This research was commissioned to help assess whether Uncertain Tax Treatment is achieving its stated aims and is proportionate. The core objectives of the research were to understand:

How customers in scope perceive the Uncertain Tax Treatment policy process and its resource implications.
How Uncertain Tax Treatment policy impacts on customer perceptions of and interactions with HMRC on legal interpretation issues.
Whether customers in scope feel that the Uncertain Tax Treatment policy impacts on their likelihood of adopting an uncertain tax treatment.

1.2 Methodology

The National Centre for Social Research team carried out 18 online or telephone depth interviews with a sample of large businesses who were in scope for interaction with the Uncertain Tax Treatment policy. The fieldwork was carried out in April and May 2024. Recruitment began with an invitation email, followed by telephone calls to seek participation and diarise interviews. An incentive of £75 was offered to thank and encourage participation in the form of a high street voucher or charitable donation.

Interviews lasted around 45 minutes and were supported by a structured topic guide and were completed with individuals in senior tax positions within their businesses. In terms of limitations associated with the research, it should be noted that the sample was self-selecting. Furthermore, as the qualitative research was with a small sample, we are not able to quantify the weight of sentiment and trends in experiences and perceptions in the broader population.

1.3 Key findings

Awareness and understanding

There were good levels of awareness of the Uncertain Tax Treatment policy amongst participants. This has been supported by media coverage and discussions with advisors and Customer Compliance Managers. Businesses’ understanding of the policy were in line with the agreed definition and aims. This included an understanding that the Uncertain Tax Treatment policy provides a mechanism for disclosing tax uncertainties and supporting higher rates of compliance.

Impact of Uncertain Tax Treatment

Following the introduction of the Uncertain Tax Treatment policy, businesses reported that they would continue to take a risk averse, transparent, and open approach over tax, with timely communication with HMRC about potential uncertainties in their accounts, typically through conversations with Customer Compliance Managers.

Businesses valued the good relationship and open dialogue they had with their Customer Compliance Managers, and they were described as a good point of contact for signposting to further sources of information and to other departments within HMRC. Participants therefore envisaged discussing any relevant issues with the Customer Compliance Manager first rather than using the new process to make an uncertain tax treatment notification.

In terms of potential impacts on engagement with HMRC, businesses reported that the policy was supporting more timely conversations with HMRC related to tax positions and that it had led to increased attention internally in terms of carrying out analysis and seeking certainty on tax positions. It was speculated that the Uncertain Tax Treatment policy may also be bringing about these changes amongst wider businesses.

Businesses suggested that the introduction of the Uncertain Tax Treatment policy would not change their approach to managing tax uncertainties that require notifying under the Uncertain Tax Treatment policy, including the likelihood of adopting one in the future. This was on the basis that business took a cautious and risk averse approach to tax underpinned by robust internal analysis. Businesses pointed to their reliance on the strength of their brand, and wanted to avoid any reputational risks associated with taking uncertain positions.

Reflecting on the impact of the Uncertain Tax Treatment policy on wider businesses, one view was that it would make external reporting of an uncertain tax treatment more likely because it was now easier to communicate and notify rather than keeping the issue in-house. Another view was that the new policy, in line with its aim, may discourage businesses from adopting an uncertain tax treatment.

Costs of the Uncertain Tax Treatment Policy

Businesses estimated that there had been low costs associated with supporting their staff to understand the Uncertain Tax Treatment policy. One off costs included initial external training or briefing sessions, and the costs associated with internal discussions about the policy and what it meant for them. In terms of recurring costs, businesses identified refresher training and keeping on top of related policies.

The associated costs of Uncertain Tax Treatment were felt to be higher when businesses needed to pay for external advisors for advice and where HMRC had to be chased for responses about Uncertain Tax Treatment related queries. The costs were felt to be lower where businesses were risk averse and did not consider uncertain tax treatments and where businesses had good internal capacity or have a retainer with advisory firms to manage their tax affairs.

Businesses speculated that filing an uncertain tax treatment could be a resource intensive process; with a preference for highlighting issues via Customer Compliance Managers.

Overall views

Three positions emerged about whether the Uncertain Tax Treatment policy will reduce the tax gap:

it will contribute to closing the tax gap as it will encourage businesses to be more risk averse and it will give HMRC more visibility of uncertain tax treatments
it will contribute to closing the tax gap, but additional actions are also required. For example, there needs to be more attention towards how uncertain tax treatments are enforced and monitored
it will not close the tax gap as non-compliant businesses will carry on as usual and not worry about the new rules

In terms of views on the £5 million threshold, one view was this large value was sensible, on the basis that HMRC needs to concentrate on where they are going to recover the most tax and that is found in bigger companies. Another view was that HMRC need to reduce it so that more businesses are in scope, which in turn would help to close the tax gap.

Question 2

2. Introduction

Accepted Answer

2.1 Background and context

His Majesty’s Revenue and Customs (HMRC) has a strategic objective to collect the right tax, a key aspect of which is closing the tax gap. A substantial portion of the tax gap (10% or £3.9 billion in 2022 to 2023) is a result of legal interpretation issues ^{[footnote 1]}. Legal interpretation losses arise where the customer’s and HMRC’s interpretation of the law and how it applies in a particular case result in a different outcome, and there is no avoidance. These differences can take several years to identify and resolve, and can involve costly litigation.

Notification of uncertain tax treatment by large businesses was implemented to help reduce the legal interpretation portion of the tax gap, by requiring large businesses to bring uncertain matters to HMRC’s attention. This means that uncertainties can be clarified and resolved earlier than they would through normal compliance activity.

The Uncertain Tax Treatment policy requires large companies and partnerships (being businesses with a turnover of more than £200 million per annum, or a balance sheet total over £2 billion) to notify HMRC where they have adopted an uncertain tax treatment that HMRC is not already aware of through its ongoing customer compliance relationship. Amounts of Corporation Tax, Value Added Tax or Income Tax (via Self-Assessment or PAYE) are classified as uncertain if the tax treatment to which they relate meets one or both of two legislative criteria:

that a provision has been made in the accounts for the uncertainty
that the tax treatment applied is not in accordance with HMRC’s known position

Businesses are required to notify HMRC only if the tax advantage exceeds a £5 million threshold.

The Uncertain Tax Treatment policy aims to level the playing field for large businesses by improving HMRC’s ability to identify uncertain tax treatments adopted by those that do not have an open and transparent approach, and to accelerate the point at which discussions on uncertain treatment can occur. Overall, this is expected to result in an increase in tax revenue because the requirement for businesses to notify HMRC will enable HMRC to become aware of potentially incorrect tax approaches sooner than would otherwise have been the case, enabling better deployment of resources, earlier conversations and, where appropriate, earlier challenge of the approach a business has taken ^{[footnote 2]}.

The Uncertain Tax Treatment policy went through several rounds of consultation before enactment. Questions were raised by consultation respondents about whether the Uncertain Tax Treatment policy would meet its aims and whether the expected administrative costs to comply with the requirement exceed the expected benefits. HMRC have therefore commissioned this evaluation to help assess whether the Uncertain Tax Treatment policy is achieving its stated aims and is proportionate ^{[footnote 3]}.

2.2 Objectives of the research

This research was commissioned to help assess whether the Uncertain Tax Treatment policy is achieving its stated aims and is proportionate by carrying out in-depth qualitative interviews with businesses who were in scope for interaction with the Uncertain Tax Treatment policy.

The core objectives of the research were to understand:

how customers in scope perceive the Uncertain Tax Treatment policy process and its resource implications
how the Uncertain Tax Treatment policy impacts on customer perceptions of and interactions with HMRC on legal interpretation issues
whether customers in scope feel that the Uncertain Tax Treatment policy impacts on their likelihood of adopting an uncertain tax treatment

2.3 Methodology

The National Centre for Social Research team carried out 18 online or telephone depth interviews with a sample of large businesses who were in scope for interaction with the Uncertain Tax Treatment policy.

2.4 Sampling and recruitment

The research targeted businesses who were within scope of the Uncertain Tax Treatment policy. These were large businesses, including Partnerships and Limited Liability Partnerships (LLP), who have either, or both, a turnover above £200 million and a balance sheet total over £2 billion. This included all businesses handled by HMRC’s Large Business directorate as well as the larger groups in its mid-sized business directorate.

Having received the list of businesses in scope for Uncertain Tax Treatment from HMRC, including contact details (n=775), the National Centre for Social Research initially invited them to take part via email. This allowed interested businesses to contact the research team directly to register an interest in taking part or to withdraw from further contact about the study, allowing two weeks for opt-outs. The email provided a link to a study webpage featured on the National Centre for Social Research website, which provided details about what participation would involve and privacy details. An incentive of £75 was offered, with participants being able to choose between a high street voucher or charity donation.

Following the advance email, the National Centre for Social Research Telephone Unit, who specialise in qualitative recruitment, called businesses who wished to take part to establish if they were a business within the scope of the Uncertain Tax Treatment policy and to arrange a time and date for interviews. The Telephone Unit also called businesses who had not opted out to explain the research, invite participation, undertake screening and arrange interviews. A study email address was set up, accessible by both the Telephone Unit and the research team, to enable opt-in requests and queries from participants to be answered quickly.

2.5 Fieldwork

Interviews were carried out over April and May 2024. Each interview lasted approximately 45 minutes and was carried out remotely using Microsoft Teams. Interviews were recorded with the participant’s consent and professionally transcribed.

2.6 Analysis

The National Centre for Social Research’s framework approach was used to summarise the qualitative data on a cross-sectional case and theme basis. Findings under key themes related to the study aims and research questions were summarised across each interview. This enabled the researchers to look across the summarised data to identify insights about how participants views, perceptions and behaviours varied across key characteristics.

2.7 Limitations of the research

It is important to note the following that the sample was self-selecting which means that the full range of views and experiences associated with Uncertain Tax Treatment may not be included in this report. Furthermore, as qualitative research with a small sample, the research is not able to quantify the weight of sentiment and trends in experiences in the broader population.

No interviews in our achieved sample told us that they had made a formal Uncertain Tax Treatment notification. Any interactions about uncertain tax treatments were rather between businesses and their HMRC Customer Compliance Managers, which would also mean that moving forwards they were exempt from the formal notification process for any specific uncertainties discussed.

Question 3

3. Awareness of the Uncertain Tax Treatment policy

Accepted Answer

This chapter reports on awareness of the Uncertain Tax Treatment policy, including how participants found out and learned about the Uncertain Tax Treatment policy and how it was understood.

3.1 Awareness of the Uncertain Tax Treatment policy

Participants were generally aware of the Uncertain Tax Treatment policy, however, levels of understanding of the policy varied from more limited to more extensive. As noted in section 2.7, it should be noted that none of the businesses interviewed had made an Uncertain Tax Treatment notification. One participant noted how they were exempt from the formal Uncertain Tax Treatment notification process, as they had proactively engaged with HMRC on the uncertain matter.

I understand the policy intention… to make early notification to HMRC of something which will be in the tax returns, so nobody’s hiding anything. It’s just bringing something to the attention of HMRC, but as [name] says, we absolutely would be doing that in any event, and we continue to do that post Uncertain Tax Treatment. I think one of the exemptions that you talked about, we actively speak to HMRC on all issues. So we would never probably fall into Uncertain Tax Treatment for that reason, because we have that dialogue.

Participants had become aware and been told about the Uncertain Tax Treatment policy in a variety of ways. This included awareness of or involvement in the development and or consultation stage; receiving communications and information about Uncertain Tax Treatment from consulting and tax advice providers; and through their contact and communication with their Customer Compliance Manager.

It was probably in and around the time that the legislation was being drafted, and there was plenty of coverage. Certainly, our advisors were dropping press releases and notices about it, so yes, I think we were fairly well informed.

Our accountants, auditors, and specialists are always looking at changes to tax regulation, so we’re regularly briefed on anything that might affect our business.

We also got our customer compliance manager […] actually got in touch with us and told us about it. So if we had missed it, which we hadn’t, if we had missed it, [they] made sure that we knew about it. I thought that was really good from the CCM [Customer Compliance Manager] to actually do that.

3.2 How the Uncertain Tax Treatment policy was understood

Participant’s understanding of the aims of the Uncertain Tax Treatment policy were generally in line with the agreed definition. This included an understanding that it would allow HMRC to identify where companies may be taking a position that was not in accordance with HMRC’s guidance. It was also felt that the policy would help to ensure compliance around tax positions and provide a mechanism for businesses to disclose and provide information to HMRC that was not already provided elsewhere.

There was an understanding from some that notifications would need to be made where the tax advantage exceeded £5 million. There was also some awareness of the circumstances where businesses would be exempt from making a notification, which included where the information had previously been shared with HMRC.

Question 4

4. Impacts of the Uncertain Tax Treatment policy

Accepted Answer

This chapter reports on the findings about the perceived impacts of the Uncertain Tax Treatment policy on businesses. It describes participants’ views on businesses’ nature of engagement with HMRC prior to the Uncertain Tax Treatment policy, and then describes the perceived impacts of the policy. This includes potential changes following implementation of the policy, in terms of businesses’ engagement with HMRC and on their likelihood of adopting an uncertain tax treatment.

4.1 Nature of engagement with HMRC prior to the Uncertain Tax Treatment policy

Before the introduction of the Uncertain Tax Treatment policy businesses described how they were in regular and proactive contact with HMRC and felt that issues around tax were discussed at the appropriate time. For example, after a business had performed internal analysis and sought external advice so that they had the information required in advance of completing their tax returns.

Yes, I think, before, it probably would have just been raised with the CCM [Customer Compliance Manager] at the appropriate time, once you’d figured out all of the detail that you need to tell them, which can take time to pull together to make sure that you’ve got the full facts before you take it to them.

Frequency of contact between businesses and HMRC ranged from holding risk review meetings every one or two years with the Customer Compliance Manager, to having a monthly meeting or contact every two to three weeks. Frequency of contact was also felt to be dependent on the points of time in the financial year, although participants did not elaborate on when frequency of contact increased or decreased.

More regular and transparent communication with HMRC was felt to be underpinned by businesses’ general risk averse and cautious approach around tax. Businesses also commented on the good relationship they had with their contact at HMRC such as the Customer Compliance Manager, and how they felt able to raise necessary issues such as any uncertainty about their tax position with them. However, there is also evidence to suggest that some businesses had more limited contact with HMRC for tax advice as they consulted with and followed advice from their advisory firms instead.

We would take their [one of the advisory companies] advice on board. The company I work for is very risk averse, so they would probably not go for anything that they thought was particularly risky and we would make a decision based on the technical advice we’d received. We would not really approach HMRC.

4.2 Impact of the Uncertain Tax Treatment policy on businesses’ engagement with HMRC

Following the introduction of the Uncertain Tax Treatment policy, participants envisaged the businesses they worked for adopting a similar overall approach in their engagement with HMRC. This included a continued risk averse, transparent, and open approach over tax and timely communication with HMRC about potential uncertainties in their accounts.

We’ve always been risk averse. We always will be, so I wouldn’t say it’s changed. In any event if something were deemed to be high risk we’d take appropriate advice regardless of this legislation.

Additionally, one participant explained that the amount of time it took to gather the information required and to undertake preparatory work before discussing any issues with the Customer Compliance Manager would remain unchanged. Furthermore, one view among participants was that the extent of contact between HMRC and businesses was instead driven by the relationship with the Customer Compliance Manager and their availability.

The key thing really is the relationship with the CCM [Customer Compliance Manager] and the personality of the CCM [Customer Compliance Manager] is probably the main driver, and how busy they seem to be, how much time they seem to have to engage with you, for me, I would say are the main drivers of the extent of contact.

Businesses valued the good relationship and open dialogue they had with the Customer Compliance Manager. They were also described as a good point of contact for signposting them to further sources of information and to other departments within HMRC. Participants therefore envisaged discussing any relevant issues with the Customer Compliance Manager first rather than using the new process to make an Uncertain Tax Treatment notification.

Yes, so we are a large taxpayer, so we do have a CCM [Customer Compliance Manager]. Our relationship with our CCM [Customer Compliance Manager] is very good, and so if we had thought that there was something that we needed to discuss that might be a UTT [uncertain tax treatment], it is something that I would be reaching out to our CCM [Customer Compliance Manager] and saying, ‘Can we discuss this, please?’ But we haven’t had to do that.

One participant described how the Customer Compliance Manager worked hard to maintain a good relationship with their business, and this had been aided by their increased understanding of the business because of the risk review process.

So, I think […] the CCM [Customer Compliance Manager] has worked very hard to maintain a good relationship with the business - well, our CCM [Customer Compliance Manager] does. […] I think the HMRC’s business risk review process helps because that gets the CCMs [Customer Compliance Managers] out and into the business and helps them to understand the business a little bit more. That links back quite nicely to uncertain tax treatments because any uncertain tax treatments should come up for discussion in the business risk review process as well.

However, this did not always appear to be the case. For example, a participant noted how their business did not benefit from their relationship with the Customer Compliance Manager as they were reluctant to provide any opinion or ruling regarding tax returns.

An alternative approach was where a business anticipated limited ongoing contact with HMRC, again following their engagement approach before the Uncertain Tax Treatment policy was introduced as described above. Reasons for more limited contact included to avoid drawing attention to tax issues, and a preference for discussions around uncertainties to continue to be held with business auditors instead.

To be honest, we’ve never actually had to go and talk to our CCM [Customer Compliance Manager]. As I said, we try and avoid getting into the position where you’re identifying tax issues. We’d rather actually make sure that we think we’ve got a good, robust position on our tax rather than go and talk to HMRC about it.

4.3 Potential changes to engagement

Participants reflected on potential changes to their engagement with HMRC because of the Uncertain Tax Treatment policy. Participants spoke about how the new policy acted as a prompt to engage with them. Potential changes in their engagement with HMRC included:

engaging with HMRC faster: One reason for this was that any provision in statutory accounts would need to be signed off by a certain date
increased attention to issues around tax and spending longer analysing tax positions and seeking certainty: Reasons for this included to remove the need or requirement to disclose to HMRC, and so that businesses were prepared to respond to any questions or challenges about potential tax uncertainties

I think we’re more aware of the fact that there is this rule there and there is the potential for challenge. So, we would rather go and make sure that we get something right rather than just argue it. We make sure we’ve got the back up for it and everything.”

Additionally, one view among businesses was that it was now taking longer to seek certainty as the Customer Compliance Managers appeared to be busier. One participant suggested that this may be an indirect impact of the Uncertain Tax Treatment policy, as Customer Compliance Managers may be receiving more inquiries, or reflective of wider operational issues within HMRC.

[…] I don’t believe the legislation itself has resulted in any increase in the time taken clarifying uncertain treatments. But what we are seeing is it is taking our CCM [Customer Compliance Manager] longer to clarify when [they have] to go and seek advice from elsewhere within HMRC. But I believe that’s due to operational issues within HMRC. […] Maybe there’s an indirect impact where they’ve got more people contacting them, so they’re busier, but I don’t believe that the legislation has directly increased the amount of time it takes us.

Participants also reflected on potential changes to the nature of other businesses’ engagement with HMRC around tax. Potential changes included:

adopting a more risk averse approach to tax: The chance of businesses getting a tax advantage that HMRC might not agree with was felt to have decreased following the requirement to raise the issue. It was also felt that the new policy may encourage businesses to communicate more with HMRC and have a better relationship with them
increased timeliness of engagement with HMRC and the flagging of any tax related issues: Participants reflected on how the Uncertain Tax Treatment policy placed the onus on the business to raise issues. It may also encourage businesses to engage with HMRC earlier or in a more timely way to make sure that any potential uncertain tax treatment was properly disclosed

Lastly, there was also a view that the Uncertain Tax Treatment policy was part of a wider suite of policies that all worked together to improve tax compliance for the corporate sector.

I think for corporates, particularly, as I say, big corporates, who take their tax responsibilities seriously, like ourselves, then I think it is, yes, it does make quite a big difference. As I said there, I think it’s all part of a suite of different policies, all that work together to enhance tax compliance for the corporate sector.”

4.4 Impact on reliability of HMRC discussions

Participants spoke about how HMRC was generally viewed as an objective department that acted with integrity. Businesses felt able to reach an agreement with them and effectively liaise with their Customer Compliance Manager and external advisors. One view among participants who were more aware of the Uncertain Tax Treatment policy was that it provided a standardised framework for discussions with HMRC regarding certainty over legal interpretation issues across businesses. This was felt to be especially important given the perceived range of businesses’ approaches to tax related risk, to help ensure that some businesses were not disadvantaged regarding tax issues compared with others. One participant spoke about how the ‘cautious’ approach of the business they worked for meant that they may highlight tax issues to HMRC that other businesses may not.

[…] the risk before was, because we are quite cautious we’ve perhaps disadvantaged ourselves because we took things to HMRC that other people didn’t… the legislation does give you some confidence that there is consistency and a standard framework across different businesses.

However, another view among participants was that the new policy potentially introduced a more legalistic and formal approach, which may mean an uncertain tax treatment now took longer and could be harder to resolve.

I think it might make it harder to resolve [tax uncertainties] because it’s a more legalistic approach, more formal. Therefore, it would probably take longer because I suspect HMRC feel that if they’ve received one of these, they have to refer it to the specialists at head office who deal with these kind of things.

4.5 Impact on likelihood of adopting an uncertain tax treatment

Participants also reflected on potential changes to their businesses’ likelihood of adopting a uncertain tax treatment under the policy. One view among participants was that it would not change their businesses’ approach to managing tax uncertainties that require notifying under Uncertain Tax Treatment and or they were unlikely to adopt an uncertain tax treatment in the future. Three overarching reasons were suggested for this.

Firstly, as described above, businesses viewed themselves as ‘risk averse’, ’cautious’ and compliant with HMRC in their approach to tax. They had existing systems in place where they carried out internal analysis and flagged any uncertainties or potential issues for consideration with HMRC. This was because the business was trying to be transparent and to avoid having any ‘grey’ positions on tax.

…I think we would, we tend to, when it comes to tax planning, we don’t engage in anything that is controversial. We’re relatively risk averse. We look to be compliant, … That approach was in place before UTT [the Uncertain Tax Treatment policy], and it continues to be in place afterwards.

Secondly, there was felt to be recognition of businesses reliance on the strength of their brand, and they wanted to avoid any scrutiny or reputational risks.

Thirdly, some businesses anticipated not meeting the current Uncertain Tax Treatment threshold. Participants also reflected on the potential impacts of the policy on other businesses’ likelihood of adopting an uncertain tax treatment. One view among participants was that the new policy would make external reporting of an uncertain tax treatment more likely because it was now easier to communicate and notify rather than keeping the issue in-house. Certainty that there were no penalties of going to HMRC with an uncertain tax treatment would also help to encourage businesses to consider it as an option in the future.

In contrast, there was also the view that the new policy may discourage other businesses from adopting an uncertain tax treatment, and this change was felt to be in line with the policies’ aims.

Another view was that businesses who were typically less transparent about their tax may now actively avoid adopting uncertain tax treatments so that they could avoid declaring it to HMRC and the potential resulting confrontation. The new policy may also mean that there was less chance of any tax advantage anyway.

I would say it’s written so that it discourages people from adopting them in the first place, I would say. If they were the sort of company that wasn’t going to be transparent, then they might decide that they preferred to have some certainty, rather than have uncertainty, so I’d say yes, it probably would change the behaviour of some companies.

Yes, I think it might discourage people from - when you think back to the tax scandals, those types of things. Yes, I think it probably would because if it’s going to be no benefit, because you’re still having to disclose it and potentially not have the tax advantage, then, yes, I imagine it probably would discourage people from going into strange transactions that they may have not thought about twice historically.”

There was also felt to be a greater need to ensure a business was in a robust place to defend its position, and to avoid scrutiny of their accounts and risk to their brand.

Just the increased disclosure, I think. I think there are a number of reasons why a business might be put off with that now. Certainly, businesses are a bit more conscious now about reputational damage as well, and I think it just makes those aggressive businesses think twice about what they might or might not position, they might or might not adopt.

Finally, a lack of sufficient resource for the perceived additional administrative work required, was a further potential reason given for the policy discouraging other businesses from adopting an uncertain tax treatment.

Question 5

5. Costs associated with the Uncertain Tax Treatment policy

Accepted Answer

This section explores the costs associated with the Uncertain Tax Treatment policy. It begins by outlining the types of costs businesses had encountered. It then describes the factors that were felt to have increased uncertain tax treatment related costs or which had kept them low.

5.1 Costs for internal staff

Businesses described the costs for internal staff to learn about the Uncertain Tax Treatment policy, familiarise themselves with it and keep abreast of Uncertain Tax Treatment related matters. These costs were typically seen as low and were either one-off or recurring.

One-off costs:

One-off costs were for the time invested by internal staff to learn about the Uncertain Tax Treatment policy and understand it. These costs tended to be incurred around the time of the introduction of Uncertain Tax Treatment, and came in the form of:

initial training costs: Businesses described existing staff attending externally delivered training or talks about the Uncertain Tax Treatment policy, such as a briefing provided by one of the ‘Big 4’. Such training costs were described by a participant as ‘negligible’ and in some cases advisory companies provided a training or briefing free of charge or as part of their retainer
time for familiarisation and internal discussion: Businesses also encountered the one-off costs associated with the time which staff invested early on for internal discussions, meetings and talks about what the Uncertain Tax Treatment legislation meant, as well as familiarisation with the new policy and rules. This included discussions with HMRC

We didn’t actually invest in someone to come out and talk to us on it or anything like that, but yes, people would have invested some time understanding the rules.

Recurring costs:

Businesses experienced recurring costs to update their knowledge about the Uncertain Tax Treatment policy, building on what they had acquired when it was introduced. Recurring costs came in the form of:

annual and refresher training: At annual training cycles, companies would go over the rules to ensure staff were up-to-date on Uncertain Tax Treatment requirements. A participant explained that sometimes Uncertain Tax Treatment related training needed to be updated due to legislation changes:

Training would be recurring, because obviously, either as a refresher or as legislation and things change [to] refresh and update on what was on the training previously.

time for regular meetings and discussions: Ongoing conversations amongst staff were required to keep on top of how new, emerging policies and legislation interacted with the Uncertain Tax Treatment policy. A participant described Uncertain Tax Treatment as being a recurring ‘line in the agenda’, thus talking to management about it on a regular basis, as well as having conversations with HMRC:

[Uncertain Tax Treatment is] just one of a number of things that have come into the remit of a UK in-house tax professional now…It’s not a big draw on time, but it’s something that needs to be done and considered on an ongoing basis, and in particular, if we have a particular transaction…

administrative tasks: There was also speculation that making an Uncertain Tax Treatment notification would increase administration time, with a participant suggesting that the anticipated extra time may put companies off filing a Uncertain Tax Treatment in the first place

5.2 Costs for advisor input

When making decisions on Uncertain Tax Treatments, most businesses had the support of an internal tax team and/or a good relationship with their Customer Compliance Manager, and thus got advice on Uncertain Tax Treatment matters directly from them. However, despite this, businesses also anticipated or had encountered costs for advisor input to support them when they had required:

technical advice: When more technical matters cropped up, such as advice on industry-specific legislation, businesses said that they may need external advice, primarily from one of the larger accounting firms, which would cost them money

We do all the compliance work in-house. We have a tax team that do all the tax returns and we do most of the advisory stuff within house, but we use outside advisers for more technical challenges.

thorough evidence: A business mentioned that HMRC auditors had been getting stricter in recent years (which they speculated may be related to the new Uncertain Tax Treatment legislation). They are therefore having to be more thorough with their evidence when taking positions and have had to invest money into getting advisor input

While many businesses sought or anticipated the need to seek external advice on an ad hoc basis, others mentioned that they would need to see how frequent their need for guidance was and whether an advisor or in-house professional would be required on a permanent contract.

5.3 Size of costs

The size of costs relating to the Uncertain Tax Treatment policy were affected by a number of factors. Below we describe the factors that could lead to higher or lower costs.

5.4 Higher costs

An increase in Uncertain Tax Treatment-related costs was associated with:

paying advisors: When businesses sought Uncertain Tax Treatment related advice from external advisors (as discussed in 4.2, their costs increased substantially:

[Costs] were low, because it would just be us looking at legislation and coming to a conclusion, but if there was something that we were uncertain of and we went to external advisors, then obviously the costs there would be a lot higher.”

Customer Compliance Manager delays: Businesses explained that their Customer Compliance Managers had been taking longer to respond to queries concerning the Uncertain Tax Treatment policy, which in turn meant that they needed to invest more staff time to follow up with them for an answer. They stressed that delays were particularly long when Customer Compliance Managers had to seek advice from elsewhere within HMRC

As noted in Section 4.3, it was speculated that these delays might be linked to the introduction of the new Uncertain Tax Treatment legislation and the fact that more businesses are now engaging with their Customer Compliance Managers, leading to a higher volume of queries for Customer Compliance Managers to deal with. Alternatively, it was suggested that these delays could be linked with wider operational issues within HMRC.

5.5 Lower costs

Uncertain Tax Treatment-related costs were felt to be lower when:

businesses were risk averse: Self described risk averse businesses explained that they do not consider treatments contrary to HMRC’s position and thus do not invest much time in, or require external advice on Uncertain Tax Treatment related matters, meaning they only have internal costs for staff training and discussions

…we don’t tend to engage in things that are uncertain or controversial, so it would be difficult to see where we would have to spend a lot of money, specifically on Uncertain Tax Treatment.”

there was in-house knowledge: Having in-house knowledge and tax functions often minimised the need for businesses to pay for external advice and/or staff training:

…if our business didn’t have a tax function…I can imagine the business might have had to spend some time with advisors to understand the new rules and understand the impact…Because we have an in-house tax option, we’re able to pick that up more efficiently.”

businesses had retainers with advisory firms: Costs were lower when businesses had advisory firms on retainers, which include Uncertain Tax Treatment-related matters as part of the agreement

We pay a retainer to be able to ring up [an advisory company] and have a discussion about things and anything that’s new on the horizon; they’ll often run either a conversation or a training session and invite us along. So, it’s built in already into our costs for the year.

Question 6

6. Overall views of the Uncertain Tax Treatment policy

Accepted Answer

6.1 Likelihood of closing the tax gap

HMRC has a strategic objective to collect the right tax, a key aspect of which is closing the tax gap. A substantial portion of the tax gap (10% or £3.9 billion in 2022 to 2023) is a result of legal interpretation ^{[footnote 1]}. There were mixed views among participants about whether the Uncertain Tax Treatment policy would contribute towards closing this portion of the tax gap.

One view was that it would encourage more businesses to be more risk averse and consistent when disclosing uncertain tax treatments. It was felt it would give HMRC more visibility of uncertain tax treatments and allow them to challenge or question these, therefore contributing to reducing the tax gap.

An additional view was that, while it will help contribute to closing the tax gap, further actions need to be considered as part of the new policy, such as more enforcement and monitoring of uncertain tax treatments.

I don’t think UTT [Uncertain Tax Treatment] on its own will achieve the desired effect; I think there has to be some thought around how it is monitored and enforced.

On the other hand, there was a view among businesses that the legislation will not effectively reduce the tax gap. This is because non-compliant businesses are likely to remain non-compliant. Furthermore, non-compliant businesses might choose not to disclose their uncertain tax treatment as they fear the implications. As discussed in Section 4.5, it was suggested disclosure could invite further investigation and more intense scrutiny of their financial practices. They felt that while the policy may benefit organisations that are already adhering to the Uncertain Tax Treatment policy requirements, it would be unlikely to impact those that are not compliant.

Rulebreakers are rulebreakers. You just pile more rules on and compliant businesses do more reporting, and non-compliant businesses carry on business as usual…. If you’re avoiding tax, you’re probably unlikely to worry about Uncertain Tax Treatment rules.

Additionally, another reason it was felt that the Uncertain Tax Treatment policy will not close the tax gap completely was because it is very large.

6.2 Views on the Uncertain Tax Treatment criteria

As noted previously, Uncertain Tax Treatment requires large companies and partnerships (being businesses with a turnover of more than £200 million per annum, or a balance sheet total over £2 billion) to notify HMRC where they have adopted an uncertain tax treatment that HMRC is not already aware of through its ongoing customer compliance relationship. Amounts of Corporation Tax, Value Added Tax or Income Tax (via Self-Assessment or PAYE) will be classified as uncertain if the tax treatment to which they relate meets one or both of two legislative criteria:

that a provision has been made in the accounts for the uncertainty
that the tax treatment applied is not in accordance with HMRC’s known position

Businesses will only be required to notify HMRC only if the tax advantage exceeds a £5 million threshold.

6.3 Views on the Uncertain Tax Treatment threshold

There were mixed views about the £5 million threshold component of the criteria. One view was that it was fairly high and therefore smaller businesses who may have tax uncertainties that are notifiable under the Uncertain Tax Treatment policy will be unlikely to meet the threshold and will therefore not be required to make Uncertain Tax Treatment notifications.

The alternative view was that it was a sensible amount which allows HMRC to concentrate on the largest tax returns. Businesses felt that the legislation should be aimed at bigger companies so that they can focus on the Uncertain Tax Treatment uncertainties with the largest amounts of money involved.

I thought the thresholds were sensible. As I say, they’ve got to concentrate on where they’re going to recover the most extra tax, and that will be the big companies.

6.4 Views on the additional Uncertain Tax Treatment trigger

In 2021, a third criterion was proposed and consulted on and was subsequently not included: This was where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects.

Participants did not support the inclusion of this third potential trigger. This was on the basis that businesses may struggle to predict what the court opinion would be before going to court. There was also a view that it was right to be excluded as a court or tribunal is separate from HMRC and this would take away the opportunity for challenge. Participants also felt that extending the number of triggers would make the Uncertain Tax Treatment policy more complicated and burdensome for businesses to navigate.

6.5 Perceptions of HMRC

Participants’ perceptions of HMRC regarding legal interpretation issues had not changed since the introduction of the Uncertain Tax Treatment policy. Participants stated that HMRC as an organisation has not really changed at all since the introduction of the Uncertain Tax Treatment policy and felt that they are an organisation who are continuously trying to improve and be more efficient. Participants generally felt that the Uncertain Tax Treatment policy was a good extra tool to help reduce the tax gap.

Some participants’ perceptions of the customer service provided by HMRC was good. This was often linked to having a Customer Compliance Manager and working with them. Businesses spoke about their good relationship with HMRC prior to the new policy and there was a view that little had changed in terms of their relationship since its introduction.

However, one view among participants was that HMRC dealt out large penalties too quickly for late payments of tax and one business described this as “a bit overly aggressive”. In addition, perceptions of HMRC’s customer service were not always positive. One participant described how the Customer Compliance Manager was reluctant to share their opinion, and it was suggested that the business did not benefit from the relationship.

I don’t think we get much out of the relationship. It’s all very well having quarterly calls and being up to date about the business, but I don’t see that it translates into much benefit for us.

6.6 Resourcing

It was argued that Customer Compliance Managers have a hard job obtaining clarifications internally from technical experts when Uncertain Tax Treatment related issues arise. It was suggested that increasing their capacity would allow Customer Compliance Managers to resolve matters more quickly.

6.7 Smaller businesses

It was noted that smaller businesses do not have a Customer Compliance Manager in place, and so it may be more difficult for them to make sure they are doing the right thing as they would not be able to discuss it with their Customer Compliance Manager. It was felt that larger businesses generally received a better service because they could just drop an email or call their Customer Compliance Manager to get a more prompt response.

Additionally, participants felt that HMRC’s business risk review process helps because it gets the Customer Compliance Managers out and into the business and helps them to understand the business a little bit more, which smaller businesses do not have access too.

6.8 Further reflections and recommendations for HMRC

There was interest in having more information from HMRC about how the Uncertain Tax Treatment policy is working in practice. For example, participants requested information about how specific Uncertain Tax Treatment notifications have been managed by HMRC. This included interest in the outcomes of different cases. There was also interest in understanding the timeline that HMRC work to once a notification is raised. Relatedly, a concern was that making an Uncertain Tax Treatment notification could lead to protracted periods of uncertainty for businesses.

It was suggested that all businesses who may meet the Uncertain Tax Treatment criteria should have access to a Customer Compliance Manager, including smaller businesses. This will help to ensure that they receive the level of customer service that they need ^{[footnote 4]}.

Businesses reported that Customer Compliance Managers may often have to obtain internal expert advice and may be unsure about their queries. It was suggested that HMRC would benefit from having more people within relevant teams with knowledge of different kinds of tax, to be able to resolve issues and questions more quickly.

https://www.gov.uk/government/publications/uncertain-tax-treatment-policy-evaluation-plan/notification-of-uncertain-tax-treatment-policy-evaluation-plan ↩ ↩² ↩³
Definition of uncertain tax treatment taken from: https://www.gov.uk/government/publications/uncertain-tax-treatment-policy-evaluation-plan/notification-of-uncertain-tax-treatment-policy-evaluation-plan ↩
https://assets.publishing.service.gov.uk/media/605a1f01e90e0724c83b872c/Notification_of_uncertain_tax_treatment_by_large_businesses_-_summary_of_responses.pdf ↩
In the published guidance there is information about how smaller businesses can contact the business support team at HMRC for support, however no participants reported accessing this. ↩

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