Are you sure? Telling HMRC about uncertain tax positions

19 March 2020

Tax is complicated, and many tax-related questions have more than one potential answer.

HMRC has today published a consultation on a proposed new requirement that all large businesses notify HMRC in advance if they are taking a tax position that they believe HMRC may not agree with.

Whilst there are existing regimes that require businesses to provide HMRC with early notification (such as the requirement to disclose tax avoidance schemes, or the new cross-border disclosure rules set at EU level), this new regime is unusual in that it is not directed at tax avoidance or tax planning. 

With no "avoidance" filter, the scope of this notification requirement may be much wider than businesses are used to. 

In the consultation, HMRC made the point that the US and Australia have similar early warning systems, and that it may save time and money if HMRC can debate differences of interpretation with businesses sooner rather than later. 

This new measure is part of a wider effort by HMRC to use changes in behaviour and attitude from businesses, rather than changes in the underlying tax law, to raise additional revenue. That said, the projected increase in tax take is relatively modest (£20m in the tax year 2021/22), compared to HMRC's estimate of the £6.2bn "tax gap" (in the tax year 2017/18) attributable to differences in interpretation between HMRC and taxpayers.  

Businesses have until 27 May 2020 to reply to the consultation. 

This proposal is not intended to suggest that HMRC’s interpretation is always correct or that a difference in legal interpretation is avoidance or evasion.