UTT14400 - Threshold test: 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 is treated as a company tax return), 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 £5m 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 Corporation Tax (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 two different Company Tax Returns. There will be one return covering the accounting period ending 31 June 2024, and a second return covering the six 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 six months to 31 December 2024.

For the purposes of Uncertain Tax Treatment (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 - Partnership tax return

For a partnership tax return relating to financial year end of 31 March 2024, the relevant period is the financial year ending on 31 March 2024 for the purposes of applying the threshold test. A resulting notification will then normally be due by 31 January 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 ‘re levant 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 straddles 1 April 2022, the threshold of £5 million is allocated to the part of the financial year falling after 31 March 2022, rather than treating this part as a short relevant period (I.e. of less than 12 months).

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 should be made merely because the financial year straddles 1 April 2022, but if the financial year itself is more or less than 12 months, then the £5 million should be apportioned accordingly

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 three out of four 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 three 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.

A relevant return for PAYE purposes means:

Income Tax (Pay As You Earn) Regulations 2003 – S.I. 2003/2682:

  • Reg 67B - Real time returns of information about relevant payments (the equivalent NICs cover is paragraph 21A of Schedule 4 of the SSCR referred to below)
  • Reg 67D - Exceptions to regulation 67B (the equivalent NICs cover is paragraph 21D of Schedule 4 of the SSCR referred to below)
  • Reg 67E - Returns under regulations 67B and 67D: amendments (the equivalent NICs cover is paragraph 21E of Schedule 4 of the SSCR referred to below)
  • Reg 67EA - Failure to make a return under regulation 67B or 67D (the equivalent NICs cover is paragraph 21EA of Schedule 4 of the SSCR referred to below)
  • Reg 67F – Additional information about payments (the equivalent NICs cover is paragraph 21F of Schedule 4 of the SSCR referred to below)
  • Reg 84F – Returns by specified employment intermediaries
  • Reg 85 – Employers: annual return of other earnings([Form P11D])
  • Reg 91 – Termination awards: information to be provided
  • Reg 92 – Termination awards: return if award changes

Example

If in a business’s financial year ending on 31 December 2024 the last PAYE return made is a Full Payment Summary (FPS) submitted on 5 December 2024, the FPS submitted on 5 December 2024 is the final relevant return so the relevant period to be considered for the threshold test is the 12-month period ending on 31 December 2024. This business will therefore include uncertain tax treatments within the FPSs made 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 in a business’s financial year ending on 31 December 2024 the last quarterly VAT return is that for the VAT quarter ending on 31 October 2024, the VAT return for that quarter submitted on 30 November 2024 is the relevant return so the relevant period to be considered for the threshold test is the 12-month period ending 31 December 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 30 November 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 31 July 2022 which is due for submission on 31 August 2022. Notification of UTTs must be submitted by 31 August 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 October 2021, January 2022, April 2022, and July 2022). 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 two quarterly return periods April 2022 and July 2022.

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 financial 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 two 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 July 2021, October 2021, January 2022, and April 2022). 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 April 2022 and July 2022 returns including the annual adjustment in the July 2022 return.
  • In year two (to 30 September 2023), whether there is any uncertain PE treatment within the October 2022, January 2023, April 2023 and July 2023 returns including the annual adjustment in the 23 return.

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

FA22/SCH17/PARA16