Notification of uncertain tax treatments draft legislation published

Large businesses will be required to notify HMRC of uncertain tax treatment in CT, VAT or income tax returns filed on or after 1 April 2022.

Large businesses will be required to notify HMRC of uncertain tax treatment in CT, VAT....

On 20 July 2021, the Government published draft legislation on a new requirement, first announced at Budget 2020, 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. In response to stakeholder feedback to consultations on the measure, the proposals have notably been revised in the draft legislation to limit the scope of the requirement. There are still a number of gaps to be filled in by guidance to be published in draft in the coming weeks, including details of exactly what information needs to be included in a notification. Large businesses should begin to consider now how they will approach the requirement.


The proposed new notification requirement for UTTs was first announced at Budget 2020 and has been the subject of two consultations, the most recent of which concluded in June this year (see our previous article for further background).

Kevin Elliott

Director, KPMG Law

KPMG in the UK


HMRC have noted in their consultation response that there has been some strong opposition to the UTT proposals based on the stated policy objectives and exchequer impact of the measure relative to the additional compliance burden placed on large businesses. Despite this resistance HMRC have decided to proceed with the measure but the draft legislation incorporates some notable changes which further limit the scope of the proposals in the recent consultation, following stakeholder feedback.

In relation to the definition of 'uncertain tax treatment' HMRC have reduced the number of proposed triggers from seven to three. Two triggers were retained from the second consultation (see A and B below) and a new one (C below) has been added which combines elements of three of the previously proposed triggers. In addition, some further exemptions from notification have been added, most notably in relation to permanent establishment (PE) profit attribution and transfer pricing uncertainties.

Large businesses in-scope

The measure only applies to large businesses, which very broadly comprises companies and partnerships with UK turnover of greater than £200 million per annum or a UK balance sheet total over £2 billion. For non-UK resident companies and non-UK resident partnerships (partnerships which are managed and controlled outside the UK), UK turnover and UK balance sheet total is limited to the amounts which are attributable (on a just and reasonable apportionment) to activities within the charge to corporation tax on income. For UK resident companies and partnerships the full turnover and balance sheet total amounts must be included.

For groups, the turnover and balance sheet amounts for all companies and/or partnerships within the charge to corporation tax need to be aggregated.

As previously indicated in the second consultation, the draft legislation includes a relieving provision such that an asset manager business's turnover and balance sheet threshold calculation does not include the attributes of fund portfolio companies. There is also an exclusion which applies to Collective Investment Schemes.

Taxes in scope

The taxes in scope are corporation tax, VAT and income tax (including amounts collected via PAYE). For these purposes corporation tax includes any amount chargeable as if it were corporation tax or treated as corporation tax, but there is a specific exception which excludes the bank levy, the banking surcharge and controlled foreign company (CFC) charges. We have also previously confirmed with HMRC that the Diverted Profits Tax is outside of scope.

What is an uncertain tax position?

Under the new proposed rules, a tax treatment is uncertain where one (or more) of the following triggers applies:

A. A provision has been recognised in the accounts of the company or partnership, in accordance with generally accepted accounting practice, to reflect the probability that a different tax treatment will be applied to the transaction than the treatment which formed the basis for the amount included in the relevant tax return;

B. 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 would interpret or apply the law; or

C. If it is reasonable to conclude that, if a tribunal or court were to consider the tax treatment applied in arriving at the amount, there is a substantial possibility that the treatment would be found to be incorrect in one or more material respects.

The narrowing of the number of triggers is welcomed and HMRC's summary of the responses to the second consultation noted that the first two triggers were generally considered appropriate and sufficiently objective by a majority of respondents to the consultation.

HMRC have acknowledged that taxpayers will be relying on their guidance to determine if they need to notify under B and that the onus will be on HMRC to ensure their own guidance is kept up to date and is sufficiently clear on what HMRC's technical positions are. It is encouraging that HMRC have stated they will look for opportunities to improve their guidance and see UTT notifications as providing ‘richer evidence’ of areas where clarifications are needed in legislation and guidance. It should also be noted that HMRC's known position applies not only to guidance and statements in the public domain but also interactions that the taxpayer has had with HMRC directly regardless of whether they relate to the specific transaction under review, so a previously rejected clearance application or refusal to provide a low risk confirmation could all be relevant factors for B.

The new trigger C is broader than B but likely to have significant overlap. As noted above, this new trigger combines elements of three of the previously proposed triggers including the universally unpopular trigger for novel tax treatments and the trigger for treatments where conflicting or unsupportive advice was received. The objective appears to be to catch situations where there is no known HMRC interpretation and where taxpayers are taking filing positions which are subject to substantial litigation risk. HMRC have indicated they do not wish to remove B, despite its overlap with C, as trigger B is likely to be the most straightforward to apply in practice and may help alleviate some of the compliance burden. The main question which the draft clauses do not address is what constitutes a ‘substantial possibility’. We anticipate that the draft guidance (which HMRC have said will follow in the coming weeks) will address this question.

Notification threshold

A large business is required to notify HMRC of an uncertain tax position where it would obtain a tax advantage as a result of applying the uncertain tax treatment which exceeds £5 million. When reviewing whether the £5 million threshold is met the business must consider the aggregate value of all such tax advantages that would be obtained by bringing in the uncertain amount, and any related uncertain amounts. The good news is that these aggregation provisions are limited in scope - they only apply to treatments in the same tax return for the same financial year and the treatment applied must be substantially the same. This means for corporation tax treatments there is no requirement to aggregate treatments across the group although for VAT, where there is a VAT group, this would be required.

Notification filing

A separate annual notification is required to be made for each tax as follows:

  • Where the relevant return is an annual return, e.g. for corporation tax, the notification is due on or before the date on which the return is required to be made; and
  • Where the relevant return is not an annual return, e.g. for VAT, the notification is due on or before the date on which the last relevant return for the financial year in question is required to be made.

At this stage there is no detail in the draft legislation on what needs including in a notification – this is to follow in guidance in the coming weeks.

Exemptions from notification

The following items are exempt from notification:

  • General exemption: Amounts included in a relevant return are not required to be notified if 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. HMRC have also confirmed that for large businesses without a CCM, they will utilise the existing Customer Engagement Team to provide a structured opportunity for those businesses to discuss uncertainties with HMRC before filing tax returns so they too can benefit from this exemption. Once draft guidance is available setting out what a notification will entail in terms of information requirements it will be important for businesses to consider how this impacts their approach to how they interact with HMRC;
  • Exemption for certain group transactions: For corporation tax, there is no requirement to notify in cases where the uncertain tax amount relates to transactions between members of the same corporate group and the net effect is that any overall tax advantage obtained by the group is less than the £5 million threshold; and
  • Exemption for uncertainties relating to transfer pricing and UK permanent establishment profit attribution: There has been widespread feedback that transfer pricing should be excluded from the scope of the UTT notification as it is an inherently uncertain area and the main uncertainties are not matters of legal interpretation, rather judgements as to how to apply the arm's length principle which are generally economic rather than legal in nature. HMRC have opted for a halfway house where they have excluded transfer pricing and profit attribution uncertainties from notification under the new trigger C but any treatments for which a provision has been made in the accounts or which are contrary to HMRC's known position remain in-scope. Other treatments where the uncertainty is not specific to the application of the arm's length principle but relates to §  other aspects of the transfer pricing legislation, for example whether the participation condition is met, also remain in scope.


HMRC have decided to introduce escalating penalties for repeated failure to notify in response to feedback received through the consultation process that the £5,000 penalty was unlikely to deter non-compliance amongst the minority of large businesses who are not currently acting transparently in their dealings with HMRC.

The penalties for not making a notification are as follows:

  • £5,000 for a first failure in respect of a relevant tax;
  •  £25,000 for a second failure (within a three year period) in respect of the same relevant tax; and
  • £50,000 for a further failure (within a three year period) in respect of the same relevant tax.

Penalties may be appealed where the business has a reasonable excuse.

Next steps

HMRC are inviting feedback on the draft legislation until 13 September 2021. The legislation is expected to be enacted in Finance Act 2022.

As the notification requirement is planned to take effect for returns filed on or after April 2022 you 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. You should therefore begin to consider now whether any ongoing or anticipated transactions may give rise to an uncertain tax treatment that may be required to be notified.

You should also think about how you will approach your interactions with HMRC on tax uncertainties in light of this measure, particularly once further guidance is available from HMRC on what the notification entails.

 If you would like to discuss the requirement please speak to your usual KPMG contact.