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

The proposals

At the March 2020 budget, the government announced plans to require large businesses to notify HM Revenue and Customs (HMRC) where they've adopted an uncertain tax treatment.

A consultation was published on 19 March 2020 and closed on 27 August 2020. We responded to that first consultation by HMRC last year.

In recognition of concerns raised by respondents to its consultation, in November 2020, the government announced that it would delay carrying out the proposals by 12 months, to allow officials to respond to those concerns and to engage further with stakeholders.

This second consultation seeks views on the changes to the proposal resulting from responses to the previous consultation, particularly:

  • the definition of uncertain tax treatment
  • the proposed threshold for notification
  • exclusions from the requirement to notify
  • proposed penalties for non-compliance

Our view

We submit that the policy objectives and desired outcomes of the measure are insufficiently clear and that the measure would impose a disproportionate compliance burden on taxpayers.

We strongly recommend that the government explores the policy objectives and desired outcomes behind this proposal more fully and openly, starting from an earlier stage in the Tax Consultation Framework process.

The measure should then be redesigned to achieve these objectives and outcomes in the most effective and efficient way.

Failing that, and without prejudice to our recommendation above, we suggest other ways in which the government might better target proposals and reduce the risk of negative impacts, including:

  • more targeted triggers and scope
  • a possible phased approach to introduction

HMRC should also be sufficiently resourced to enable dialogue equivalent to dialogue with customer compliance managers (CCMs) for all taxpayers affected.

What this means for solicitors

The measure has potential to create uncertainties and outcomes that undermine the rule of law, affecting solicitors who advise on tax, and their clients.

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 government plans to pass the notification requirement into law in the Finance Bill 2021-22. It would then apply to transactions in returns due to be filed after April 2022.

Read the consultation on the GOV.UK website

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