Notification of uncertain tax treatment by large businesses (first stage consultation) – Law Society response

We responded to an HM Revenue and Customs (HMRC) consultation about the proposal to require large businesses to notify HMRC where they have adopted an uncertain tax treatment.

The proposals

This consultation is about a proposed measure that would require large businesses to notify HMRC where they have adopted an uncertain tax treatment.

The consultation states that an uncertain tax treatment is one where the business believes that HMRC may not agree with their interpretation of the legislation, case law, or guidance.

Our view

Our response argues that the proposed measure should be reconsidered, and explains our three main concerns with the measure as it is currently proposed.

The proposed measure effectively:

• involves a process of guessing what HMRC might be thinking
• confers discretion on HMRC to determine the meaning of the law
• attaches a penalty to the failure to guess correctly, jeopardising taxpayer safeguards

All of this means that the measure, which goes beyond international law and accounting comparators, is incompatible with the rule of law, imposes an excessive and unreasonable compliance burden on taxpayers, and risks unintended negative consequences.

What this means for solicitors

Counter-productively, the proposed measure could dis-incentivise taxpayers to seek advice and solicitors to offer it, which would run counter to the rule of law.

There are serious questions as to what solicitors' role and liability would be in giving advice on the proposed measure, if it's implemented into law.

Larger law firms may also need to consider whether they would qualify as large businesses for the purpose of the proposed measure, such that they would fall within the scope of the proposed notification requirements.

Next steps

The consultation closed on 27 August 2020.

The government originally hoped to introduce legislation which would apply the measure to returns filed after April 2021.

That timescale may have been affected by disruption caused by the pandemic.

Read the consultation on the GOV.UK website