ICAS responds to the consultation on extending the Notification of Uncertain Tax Treatment regime

We have responded to the recent consultation on extending the Notification of Uncertain Tax Treatment regime. We raised concerns about the proposals and suggested some alternative approaches.

In an earlier article, we looked at the consultation on extending the Notification of Uncertain Tax Treatment regime (UTT). 

Our response doesn’t support any of the proposals. Instead, it sets out some alternatives that would help HMRC to achieve its stated objectives without imposing unnecessary burdens on taxpayers. Our suggestions would also help taxpayers obtain certainty. 

Alternatives to extending UTT

Certainty for taxpayers

The consultation states that the intention behind expanding the scope of UTT is to require additional legal uncertainties to be brought to HMRC’s attention, so they can be “discussed, clarified and resolved sooner.” 

Feedback we receive indicates that compliant businesses and individuals would welcome an effective route to resolve uncertainties with HMRC in a timely manner. They want certainty. The existing non-statutory clearance (NSC) process is unsatisfactory, with requests often rejected by HMRC on the basis that there isn't any uncertainty.

Expanding UTT wouldn’t help taxpayers, as it is a one-sided notification requirement. Instead, we called for additional investment in the NSC process to make it more useful and to enable discussion and early resolution of uncertainties. Similarly, we suggested expanding the existing Temporary Customer Compliance Manager (tCCM) service for mid-sized businesses. This would give those without CCMs better access to the relevant HMRC specialists, which could help them to resolve uncertainties.

Targeting of UTT 

We have consistently called for better targeting of UTT at the uncooperative minority of large high-risk businesses, rather than the majority who want an open and collaborative relationship with HMRC.

Targeting will be even more important if the proposal to introduce a subjective third trigger goes ahead. This would impose governance burdens on all large companies rather than tackling only the small high-risk population that should be targeted.

We also don’t believe that expanding UTT to individuals and trusts is a proportionate approach, for the majority of individuals who want to comply. Unlike large businesses, most individuals and trusts won’t have CCMs or regular interaction with HMRC, particularly as the proposed design of UTT means that many will be in scope because of a one-off significant transaction.  Either UTT should be amended to provide a route to certainty for individuals, or it should be targeted at those who refuse to engage collaboratively with HMRC. 

Tax simplification and better guidance

Many tax uncertainties arise because of the underlying complexity of the tax system. We called for a commitment from the government to remove as much uncertainty as possible through a meaningful programme of tax simplification. 

HMRC could also assist in removing (or at least reducing) uncertainty by keeping guidance up to date and amending it promptly to take account of new developments. It should also take a proactive approach to developing new guidance when required, through active and timely engagement with the relevant stakeholders.

Specific consultation questions 

We also responded to the consultation’s specific questions on the three main proposals for expansion of UTT. Key points included:

Bringing individuals and trusts within scope 

If the proposals go ahead, we agreed that a focus on the tax advantage would be a better approach than attempting to define wealthy individuals.

We highlighted the challenge of lack of awareness of the UTT requirement among individuals who don’t have CCMs and may only be in scope because of a one-off significant transaction (for example, the disposal of a business on retirement). HMRC will need to consider how to raise awareness and how to promote discussions about uncertainties with a tCCM. The tCCM service will also need to be adequately resourced. 

Including additional taxes 

We highlighted various practical issues that would arise if UTT is expanded to some of the proposed additional taxes, including Stamp Duty Land Tax, Capital Gains Tax, and Inheritance Tax (IHT). 

We opposed the proposal to introduce a single due date for all UTT notifications. Feedback we received indicated that it would be preferable to continue to align notification with the timetable for returns for the relevant tax regime. This would allow UTT to be considered at the time when taxpayers are taking advice and assessing the correct legal interpretation. 

In response to a specific question about scenarios where it would be inappropriate to apply UTT, we commented that IHT should be excluded. The consultation states that HMRC expects that the number of IHT cases generating a potential tax advantage of £5 million or more would be “very limited”. We understand that existing reporting for IHT is effective and should allow HMRC to identify high-value cases. Given the practical difficulties of including IHT, we considered that excluding it from UTT would be an appropriate and proportionate approach. 

Introducing an additional trigger to broaden the range of legal interpretation uncertainties that will have to be notified 

When UTT was originally introduced, a third notification trigger was dropped before implementation due to concerns that it was too subjective. This trigger would have required notification where there was a substantial possibility that a tribunal or court would find the treatment to be incorrect in one or more material respects. 

Unfortunately, the new trigger proposed in the current consultation would be similarly subjective and difficult for taxpayers to apply. We understand that HMRC doesn’t want to set out a percentage chance of success attached to different interpretations because of a perceived risk of ‘advice shopping’. However, “more than one credible legal interpretation” is vague and could indicate that counsel’s opinion is required to determine what is credible.

It seems likely that the minority of taxpayers who adopt “intentional speculative interpretations” and don’t want to engage with HMRC may ignore UTT requirements. It will be compliant taxpayers who are more likely to discuss uncertainties with HMRC and/or make notifications. Given the subjective nature of the proposed trigger, they are likely to err on the side of caution, leading to notifications that are of no interest to HMRC. 

We also expressed concerns about the suggestion that the trigger will “link in with Guidelines for Compliance GfC13”. This potentially means that taxpayers would need to consider “if, on balance, the courts and tribunals are most likely to find [the] interpretation to be correct”. This is not a reasonable or proportionate approach. As several recent cases illustrate (PGMOL, Orsted West and Innovative Bites), predicting the approach that the tribunals and courts will take is difficult.

Let us know what you think

We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email us to share your insights and feedback.

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