CW Energy LLP

Notification of uncertain tax treatments – draft legislation published

The Government is moving ahead with the introduction of new rules which require “large” businesses to report uncertain tax treatments. Draft legislation has been included within the recently published Finance Bill 2021-22.  In this newsletter we summarise and comment on the proposed notification rules.


The draft legislation was published alongside the summary of responses to the previous further consultation that opened in April.  Draft HMRC guidance is expected in the “coming weeks”.

In overview, the rules apply to corporation tax, VAT and PAYE.  Only large businesses are in the scope of the rules being defined as those that have UK turnover of more than £200 million or a UK balance sheet total of more than £2 billion.

For further background to the provision please see our April article

Requirement to notify – the “triggers”

The major concern with the proposals as previously communicated were the largely subjective tests (the “triggers”) that were to be applied to determine whether a tax treatment may need to be notified to HMRC.  Some of these tests have now been dropped and the original seven triggers have been reduced to three triggers in the draft legislation.  Notification may be required where:

  • provision has been recognised in the accounts, in accordance with generally accepted accounting practice, to reflect the probability that a different tax treatment will be applied. It would appear that this could be a provision against a deferred tax asset as well as current tax.
  • the tax treatment applied relies (wholly or in part) on an interpretation or application of the law that is not in accordance with the known way that HMRC interprets or applies the law. The “known way” must be apparent from:
    • guidance, statements or other material of HMRC that is of general application and in the public domain; or
    • direct company dealings with HMRC (whether or not they concern the actual amount or transaction).
  • it is reasonable to conclude that, if a tribunal or court were to consider the tax treatment, there is a substantial possibility that the treatment would be found to be incorrect in one or more material respects (whether or not HMRC or anyone else is likely to make a challenge).

Tax amount at stake must be over £5m

For the uncertain tax treatment to be notifiable there must be more than £5m of tax at stake (which includes SCT) in the year ended on the last day of the period covered by the return.  In order to calculate whether the threshold has been exceeded in any year all related uncertain amounts that follow substantially the same tax treatment must be aggregated.  For each uncertain amount an “expected amount” must then be calculated.  This expected amount is the amount of the alternative treatment on which the accounting provision is based, following the HMRC known position, or the position the tribunal or court would find correct (depending on which trigger was satisfied).

Where the uncertain tax treatment satisfies more than one of the triggers then all expected amounts must be calculated with the largest difference between uncertain amount and expected amounts being used in determining whether the threshold has been met.

The summary of responses to the consultation notes that guidance will include examples of how to calculate the tax impact in different scenarios.

General exclusion where HMRC already know of the treatment

There is an exemption from notification if it is reasonable for the company to conclude that HMRC already have available to them all, or substantially all, of the information relating to a notification.

Transfer pricing and branch exclusions

There is an exemption from the notification requirements where the uncertain treatment relates to transfer pricing.  The treatment does not need to be reported where it satisfies only the substantial possibility trigger and the uncertainty relates to the application or adoption of a transfer pricing method (i.e. a pricing matter).

There is a similar exclusion for attribution of profits to a UK permanent establishment of a non UK resident company where only the substantial possibility trigger applies to the treatment.

Penalty regime

A penalty for failure to notify is to be charged on the business.  For a first failure to report there is a penalty of £5,000.  If the business has had a failure in respect of the same relevant tax (e.g. failure to report a corporation tax uncertain tax treatment) in the three years prior to the current year then this counts as a second failure with a penalty of £25,000.  If there is more than one failure in respect of the same relevant tax in the three years prior then a penalty of £50,000 may be charged.

A penalty will not apply where the business has a reasonable excuse for a failure to notify.  The legislation notes that an insufficiency of funds is not a reasonable excuse unless attributable to events outside the business’s control.  It also states that where the business relies on another person to do anything, that cannot be a reasonable excuse unless the business took reasonable care to avoid the failure.


The notification rules are to apply to corporation tax returns that are required to be made on after 1 April 2022.  Therefore all corporation tax returns for companies with years ending after 31 March 2021 will come within the new rules with respect to corporation tax.

Any corporation tax notification must be made on or before the date on which the corporation tax return is required to be made i.e. 12 months after the year end.  Therefore corporation tax returns could be submitted earlier than the due date and any notification would still be in time as long as it was filed on or before the due date.

The exact form and method of notification has not been finalised with the draft legislation stating that notification must be given by such means, and in such form, and include such information, as is specified in a notice to be published by HMRC.


The draft legislation published provides a framework for the rules and how they will apply.  It leaves a lot of detail to be filled in by HMRC.  There are a number of areas that cause concern in the draft legislation and we highlight some of them here:

  • This is a new concept but there has been no indication that HMRC will implement these rules with a similar initial “light-touch” approach that was deployed with the introduction of the Senior Accounting Officer rules;
  • HMRC guidance is given almost a law like status by these provisions. Anyone who has worked with HMRC guidance knows the comments are often very general in nature.  Using the guidance to seek to understand whether HMRC has provided a view on the correct tax treatment of a given transaction will therefore be difficult;
  • Where the guidance provides a clear view on the interpretation of a particular piece of law this would appear to result in a requirement to notify the transaction (if the facts of the transaction cannot be sufficiently distinguished) even if that guidance is not considered correct by the business (due to recent case law or otherwise);
  • In order to determine whether the £5m threshold is reached may require an assessment of what HMRC or a court may think is the correct treatment. Applying this threshold where a tax treatment has consequences across a number of tax years will be challenging;
  • Seeking to understand what HMRC believes is the correct treatment when HMRC guidance stretches to thousands of pages of information is very onerous;
  • Potentially a business will need to search for a HMRC tax treatment in the public domain. With no definition of public domain, that seems potentially very widely drawn and very difficult to say with any certainty that the entire public domain has been investigated;
  • And perhaps the most opaque of all is what constitutes a “substantial possibility”. It is possible that this could be triggered with say a 20% or 30% likelihood that the treatment used is incorrect.  We expect this will have to be further defined as such a hair-trigger would have many businesses notifying a very significant number of tax treatments.

When the guidance is published we shall provide a further update.  In the meantime, businesses should start considering tax treatments that may need to be notified and develop a process for managing this obligation.

CW Energy LLP

August 2021