Notification of uncertain tax treatments draft guidance published

HMRC guidance on uncertain tax treatment notification for large businesses gives further details, including notification contents.

HMRC guidance on uncertain tax treatment notification for large businesses.

HMRC have now published draft guidance in relation to a new requirement for large businesses (broadly companies and partnerships with UK turnover greater than £200 million per annum or a UK balance sheet total over £2 billion) to notify HMRC where they have adopted an uncertain tax treatment (UTT) in corporation tax, VAT or income tax returns filed on or after 1 April 2022. Draft legislation for the requirement was first published in July 2021 and the guidance gives additional details on how this should be applied. In particular the guidance covers what should be included in a notification and clarifications on how to interpret the three triggers which define what is an UTT. 

The requirement to notify

By way of background, notification of an UTT will be required (subject to some specific exemptions detailed below) where one or more of the below three triggers is met and the tax at stake is in excess of a £5 million de minimis threshold:

Kevin Elliott

Director, KPMG Law

KPMG in the UK


A. Accounts Provision: this trigger applies where there is an amount relating to a transaction in respect of which a provision has been recognised in the accounts of the company or partnership, in accordance with GAAP, to reflect the probability that a different tax treatment may be applied to the transaction than the one adopted in the relevant tax filing.

B. Contrary to HMRC Known Position: This trigger applies if the tax treatment applied in arriving at the amount relies (wholly or in part) on an interpretation or application of the law that is not in accordance with the way in which it is known that HMRC will interpret or apply the law.

C. Substantial Possibility: Notification is required if there is a substantial possibility that where a tribunal or court considered the tax treatment in arriving at the relevant amount, they would find that tax treatment to be incorrect in at least one material respect.

There is a general exemption from notification for amounts included in a relevant return where it is reasonable for the business to conclude that HMRC already have all, or substantially all, of the information relating to that amount that would have been included in the notification. As well as interactions between the taxpayer and HMRC (e.g. dialogue with their Customer Compliance Manager (CCM)) this includes information already disclosed to HMRC through formal channels e.g. under the disclosure of tax avoidance schemes rules, international movement of capital reporting or mandatory disclosure rules.

Certain intra-group transactions (where the net tax impact across the group is below de minimis) are also exempt, as well as there being a limited carve out for some uncertainties relating to transfer pricing and UK permanent establishment profit attribution which meet the ‘substantial possibility’ trigger only. More detail on these exemptions and the background to the measure can be found in our earlier article.

The triggers

The new draft guidance gives some further explanation of how the triggers will operate in practice including examples.

Accounts Provision

This test looks at the actual basis of provisioning in the accounts but if this were not GAAP compliant (e.g. a general risk provision that lacked specificity or where there was not a probable outflow) then the non-GAAP compliant element can be excluded.

Where there is no provision in the accounts but a GAAP compliant set of accounts should have included a provision, our understanding from the draft guidance is that this would be picked up by the substantial possibility criterion rather than the accounts provision one.

HMRC Known Position

The guidance explains that HMRC’s position is taken to be known by a qualifying company or partnership if it is apparent from guidance, statements, or other material of HMRC that is of general application and readily available and in the public domain; in addition to the business’s correspondence with HMRC. It will therefore be important for businesses to ensure they keep track of their history of dealings with HMRC to ensure where HMRC have indicated their views on a particular interpretation or application of the law that this is considered when applying this trigger (e.g. previous HMRC enquiries, clearances which were rejected etc).

Substantial Possibility

Per the guidance, the phrase ‘substantial possibility’ is intended to capture those instances where there are two or more competing treatments such that there is real uncertainty about which is correct. This criterion is aimed at the issues which sit below the threshold for making an accounting provision (i.e. it is at least as likely as not that the treatment adopted will be sustained upon examination) but there remains a substantial possibility that a court or tribunal could still find it to be incorrect.

Whether HMRC challenge the tax treatment is not the test for this criterion.

HMRC have not included in their guidance a probability threshold for what constitutes ‘substantial possibility’. They simply list out a non-exhaustive list of factors which may indicate there is a substantial possibility an alternative treatment would be applied by a court. This doesn’t appear to go far enough in helping large businesses determine when the ‘substantial possibility’ threshold is reached. In particular the guidance would benefit from either a defined probability threshold or a list of examples of when the substantial possibility threshold is not met. Currently the only example provided is where the taxpayer has received a written indication from HMRC that there is no material uncertainty about the tax treatment.

De minimis threshold

As noted above there is only a requirement to notify if there is a ‘tax advantage’ in excess of £5 million. The amount of the tax advantage is determined by a comparison of the uncertain amount with the ‘expected amount’. The ‘expected amount’ is, broadly speaking, the amount of tax that a business would have to account for if the UTT applied is found to be incorrect. The £5 million threshold applies separately to each relevant tax in each 12-month relevant period.

The guidance includes a number of examples of how to apply the threshold test and offers further explanation of when amounts should be aggregated. An important point to note in the guidance is that although NICs are not a relevant tax in scope of UTT, NICs are to be aggregated with the uncertain income tax treatment in determining the expected amount where the NICs treatment is substantially the same as the income tax treatment it relates to.

Content and format

The most significant aspect of the rules which was not contained in the draft legislation itself and is included in the draft HMRC guidance is the content and form of a notification.

According to the guidance, notifications will be made via a digital form which will be made available from April 2022. The following details of the tax uncertainty will need to be provided:

  • Tax regime (i.e. corporate tax, income tax or VAT);
  • Notification trigger(s) under which disclosure is being made;
  • Description of the transaction/tax issue type;
  • Explanation of uncertainty;
  • Reference to any relevant statute, case law and HMRC guidance to which the uncertainty relates; and
  • Indication of the amount of tax advantage relating to the uncertainty. Where multiple triggers exist and the potential tax advantages differ, the largest amount should be disclosed.

The above list is perhaps more disclosure than businesses may have envisaged from the stakeholder consultations, and the requirement to disclose the quantum of the uncertainty will clearly add to the compliance burden. Notably, there is no further detail at this stage of what would constitute an adequate explanation of uncertainty.

The content of the notification is particularly significant in that it has a read across to what level of disclosure a business would need to give HMRC (e.g. through dialogue with its Customer Compliance Manager) in order for a treatment to be exempt from notification.

As the notification requirement is planned to take effect for returns filed on or after April 2022 taxpayers may need to make notifications to HMRC in relation to the tax treatment of transactions that are happening in the current financial year. This will particularly be the case for corporation tax where the return filing deadline is one year after the end of the accounting period.

Businesses should therefore begin to consider now whether any ongoing or anticipated transactions may give rise to an UTT that may be required to be notified, and if it would be preferable to disclose these to HMRC upfront so that they become exempt from the notification requirement, or wait to make a notification.

What will HMRC do with the notifications?

According to the guidance, the details of the tax uncertainty will be reviewed to establish any tax treatments that are potentially incorrect. Taxpayers may then be contacted to establish further details of the uncertainty and/or confirm HMRC’s opinion of the applied tax treatment.

Next steps

HMRC are inviting stakeholder feedback on both the draft legislation and guidance by 14 September 2021. The legislation is expected to be enacted in Finance Act 2022. If you would like to discuss this further please speak to your usual KPMG contact.