CIOT welcomes improvements to new business compliance obligation
The Chartered Institute of Taxation (CIOT) says that consultation has fashioned the new compliance obligation for large businesses to notify HMRC of uncertain tax treatments into something that is largely workable, but similar effects could have been achieved without legislation, within the existing tax administration framework.
From April 2022 large businesses will have to notify HMRC if they have adopted a tax treatment where the business believes that HMRC, or a tribunal or court, may not agree with their interpretation of the legislation, case law, or guidance. The proposal is that businesses must notify these ‘uncertain tax treatments’ to HMRC separately from their tax return.1 HMRC claim this requirement will help to reduce the amount of tax which is not collected as a result of businesses adopting tax treatments that HMRC does not agree with – the so-called ‘legal interpretation’ part of the tax gap. However, although the measure has been much improved through the consultation process, the CIOT would have preferred a non-legislative response. The CIOT says that there are other things that could be done, many of which will be needed in any event if this compliance measure is to be capitalised on, without also adding to the burdens of compliant businesses.
John Cullinane, CIOT Director of Public Policy, said:
“We welcome the changes that have been made to this measure as a result of the consultation process. The draft legislation published yesterday shows that the Government has continued to listen to stakeholders through the second consultation and sought to address key concerns raised.”
The CIOT set out its comments in its submissions to the two HMRC consultations on this measure.2
John Cullinane continued:
“We welcome the reduction in the number of ‘triggers’ in the definition of what is an uncertain tax treatment from seven to three, although we have some remaining concerns about the subjectivity of the definition, particularly in relation to the part of the definition based on an inevitably hypothetical view of what a court or tribunal might find to be incorrect.
“The draft legislation includes a welcome exclusion in respect of transfer pricing, recognising the particular difficulties presented by transfer pricing cases in respect of this proposed measure – due to there often being a range of apparently ‘correct’ treatments, all transfer pricing positions could be considered to be ‘uncertain’. As we said in our response to the consultations, requiring notification of transfer pricing positions would have produced a large amount of notifications for many businesses and been an unreasonable compliance burden.
“The exclusion from the requirement to notify if HMRC are already aware of the uncertain tax treatment remains. This exclusion is necessary to minimise the compliance burden for large businesses that are already open and transparent with HMRC, because they will often have already been in discussion with HMRC on the matter.
“However, we remain concerned about the parity of treatment between businesses that have a Customer Compliance Manager (CCM)3 and those that do not. The Government’s policy paper published yesterday4 said that for taxpayers without a CCM, HMRC will utilise their existing Customer Engagement Team to provide a structured opportunity to discuss tax uncertainties, so that they can also benefit from this exemption. It will be important that there is sufficient HMRC resource to make this an effective avenue for these large businesses.
“Another important aspect of this measure is that taxpayers will rely on HMRC’s published guidance to determine HMRC’s known position for the purposes of complying with this measure. We welcome that this measure is being taken as an opportunity for HMRC to look for further opportunities to improve their technical guidance.5
“Overall, the consultation process for this measure has been a good one, with significant engagement with HMRC and a willingness to discuss the concerns we raised. However, notwithstanding the improvements that have been made to the measure, we remain unconvinced that it will achieve the stated policy aims effectively or proportionately. We are not convinced that legislation is necessary to achieve the aims.6 There are other things that could be done, many of which will be needed in any event if this compliance measure is to be capitalised on, and the measure will inevitably lead to an increased compliance burden for all large businesses.”