As announced in the 2020 Budget, the UK Government intends to introduce a new notification requirement for large businesses for tax returns. Under the current proposal, large businesses will need to notify HMRC where they have adopted an uncertain tax treatment.
The new notification process aims to close the legal interpretation tax gap (currently £6.2bn), a significant proportion of which relates to large businesses.
HMRC wants to introduce a more formal reporting process to identify more of these uncertain tax positions. The USA and Australia currently have similar notification processes in place, albeit just for corporate tax, so this is not a new concept.
The proposed measures were expected to come into effect in April 2021, but this has been delayed to April 2022.
Who will be required to report?
The threshold for what is a ‘large business’ will likely be modelled on the Senior Accounting Officer (SAO) or Publication of Tax Strategy rules. Unlike SAO however, it is intended that the notification measure will apply to large partnerships and LLPs, as well as corporates.
Businesses will fall within these regimes if they have either:
- A turnover above £200m.
- A balance sheet total over £2bn.
What needs to be reported?
Value Added Tax (VAT)
Pay As You Earn (PAYE)
Stamp Duty Land Tax
Stamp Duty Reserve Tax
Petroleum Revenue Tax
Customs and Excise Duties
Insurance Premium tax
Uncertain tax treatment
HMRC will likely rely on the definition of uncertain tax treatments contained in the International Accounting standards, namely IFRIC23.
This requires an assessment at the time of notification of whether or not it is probable that a tax authority, including a court, would accept an uncertain tax treatment. That means the ultimate outcome is important, not solely the likelihood of challenge by HMRC.
Uncertain tax treatments that come to less than £1m in the tax outcome under IFRIC 23 will not be notifiable.
Exemptions should be available for anything that is reportable under DAC 6 or formally under discussion with HMRC.
How will businesses notify HMRC?
The intention is to make notifications as easy as possible and to use existing processes to limit any increase in burden on businesses and HMRC.
Notification should be a single, annual process that encompasses all relevant taxes, and is similar to the reporting process used for SAO. A return or certificate is not expected to be required if there is no uncertain tax treatment to notify.
What are the proposed penalties?
- £5,000 on the entity for failing to deliver to HMRC details of the person liable to notify.
- £5,000 on the person liable to notify, or on the entity, where they should have notified but failed to do so.
There are expected to be specific provisions relating to penalties where there are multiple reports or multiple people liable to notify.
How can Smith & Williamson help?
We are supporting large businesses to prepare for the introduction of the new rules including:
- Training tax and finance teams on the requirements;
- Supporting businesses to identify the person who will be liable to notify;
- Advising on tax risk areas across corporation tax, VAT and PAYE;
- Identification and calculation of uncertain tax treatments in relation to the interpretation of the tax legislation, case law, or guidance;
- Reviewing existing SAO procedures and adjusting these to ensure they can be used to identify and capture uncertain tax treatments;
- For LLPs and partnerships, or businesses who are new to SAO, helping to implement and document appropriate procedures.
We will also be supporting businesses with notification and filing requirements.