Improvement to ‘uncertain tax treatment’ measure welcomed

The Chartered Institute of Taxation (CIOT) has welcomed the announcement in the Budget that the most problematic element of a new compliance burden on large businesses has been dropped, at least for now.

The Budget confirmed that the government will introduce the new compliance burden for large businesses, requiring them to notify HMRC where they have adopted an ‘uncertain tax treatment’, from April 2022. Uncertain tax treatments will be defined by two criteria: that a provision has been made in the accounts for the uncertainty, or that the position taken by the business is contrary to HMRC’s known interpretation (as stated in the public domain or in dealings with HMRC). The third criterion which was included in draft legislation published in the summer (that of where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect) will not be included, although the government says it is still considering this trigger for possible inclusion later.

Adrian Rudd, Chair of the CIOT’s Corporate Taxes Committee, said:

“This is a welcome move, and takes out the most problematic part of this new measure, but we are still unconvinced that the measure is needed at all.

“The ‘third trigger’ defined an uncertain tax treatment around an inevitably hypothetical view of what a tribunal or court might find to be incorrect in respect of a tax treatment; it was loosely drafted and poorly conceptualised1. Its inevitably uncertain application would have undermined any potential efficacy of this measure.

“That the third trigger is not being introduced, at least at the outset, shows that the government has listened to stakeholders. There has been significant engagement with HMRC and HMT and a willingness to discuss the concerns we raised throughout the consultation process2, which has been valuable. Nevertheless, because of the starting point, notwithstanding the improvements that have been made to the measure as a result of this process, and today’s announcement, we remain unconvinced that the measure will achieve the stated policy aims3 effectively or proportionately.

“We have never been convinced that legislation is necessary to achieve the policy aims. Although this latest development means that the measure that will now be introduced will be easier to comply with, it will still be an additional compliance burden for all large businessesincluding the majority that are already open and transparent in their dealings with HMRC. In our view similar effects could have been achieved without legislation. Steps could have been taken within the existing tax administration framework that would be worthwhile and effective in their own right and these steps will largely be required to make this measure a success in any event.”