BKM504200 - The Code commitments – tax planning: methodology

The following sections sets out HMRC’s approach to discerning the intentions of Parliament and applying these to a transaction.

HMRC will first consider the arrangements with particular focus on whether they support genuine commercial activity and whether the tax outcome is consistent with the underlying economic consequences. These are considered further below.

HMRC will then look at the legislation purposively; this is not limited to consideration of the particular provision or provisions producing the tax outcome in isolation. It also includes consideration of those provisions in a broader context.

HMRC may refer to supplementary materials provided to Parliament when it considered the legislation.

If after reviewing the legislation, and supporting documents where relevant, HMRC conclude that the tax result is contrary to the intentions of Parliament then HMRC will check to see whether this tax result has become permissible through established practice.

If the tax result is contrary to the intentions of Parliament and the type of planning has not become permissible through established practice, then the transaction is Code Red unless the bank had a reasonably held belief that this is not the case. If HMRC agree that this belief was reasonably held, then the transaction will be Code Green. If HMRC takes the view that the bank’s interpretation isn’t reasonable, or material facts have been ignored, then it will remain Code Red.