New measures require large businesses to notify HMRC when they have adopted a position in their tax returns for VAT, Corporation Tax, or Income Tax (in a PAYE return or payable by individuals of a partnership) that is uncertain.
These measures apply to returns filed on or after 1 April 2022 where the tax advantage is at least £5 million. The aim of the new measures is to reduce the tax gap, that is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid as a result of differing legal interpretations of UK tax law.
Businesses that fall foul of these measures will be issued with punitive penalties. As such, large businesses need to be aware of the additional obligations to minimise their exposure to penalties.
Which businesses are affected by these measures?
Businesses (company or partnership) will fall into the uncertain tax treatment (UTT) regime where they satisfy at least one of the following thresholds:-
- a UK turnover above £200 million per annum; or
- a UK balance sheet total over £2 billion.
Where a business is a member of a group, its UK turnover and balance sheet totals should be aggregated with the other 51% subsidiaries.
What do HMRC consider to be an uncertain amount?
An amount is considered uncertain if one of the following criteria has been met:
- a provision has been made for the uncertainty within the accounts; or
- the tax treatment applied differs from HMRC’s known interpretation of the law.
If one of the above criteria is met and the ‘tax advantage’ exceeds the £5million threshold, a business is required to make a notification to HMRC unless an exemption applies.
The £5million threshold applies separately to each relevant tax in each 12-month relevant period.
An exemption to notification applies when a business has provided all relevant information to HMRC, typically through discussions with the Customer Compliance Manager. As such, these measures will particularly affect those businesses that adopt an UTT and do not have an open and transparent relationship with HMRC.
How do businesses make a notification?
Businesses will be required to complete an online notification (G-form) or can approach HMRC in advance of the deadline to provide details on the UTT.
The deadlines for UTT notifications are straightforward. Where there is an uncertain position within:
- an annual return, for example a Corporation Tax return, the notification must be made on or before the due date of the return
- not an annual return, for example a VAT or PAYE return, it must be made on or before the due date of the last non-annual return in the financial year
HMRC has advised that any unresolved UTT positions are unlikely to have any adverse consequences on Senior Accounting Officer (‘SAO’) certification as the primary focus of the SAO regime is to ensure businesses have robust tax accounting procedures.
Similarly, HMRC have advised that businesses with UTT positions will not be automatically categorised as non-low risk as part of the Business Risk Review cycle.
Penalties for failures
Businesses are liable to a penalty if they are required to notify HMRC of an UTT position and fail to do so. The penalty amount will vary depending on whether there have been multiple failures:
- for a first failure, a fixed penalty of £5,000
- for a second failure in the three financial years following the first, and in relation to the same tax, a fixed penalty of £25,000; and
- for further failures in relation to the same tax in the three financial years following a second failure, a fixed penalty of £50,000.
If a penalty has been raised there is no scope to reduce the amount. If there has been a failure and the business has a reasonable excuse for not making a notification, HMRC has advised that no penalty will be charged.
As the potential penalties are material, businesses should ensure an UTT has been discussed with HMRC or a G-form is submitted ahead of the relevant deadline.
How we can help?
Our team can help businesses navigate the UTT regime.
If you think your business may be impacted by these new measures and would like to talk through the process and potential implications further, please contact:
- Clare Halligan (firstname.lastname@example.org) or
- Janaissa Eaglestone (email@example.com)
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.