Notification of Uncertain Tax Treatments

HMRC published new draft guidance on 18 January 2022 on the requirements for large businesses to notify 'uncertain tax treatment' from 1 April 2022. The latest guidance provides further clarification and examples of how the requirement is expected to operate in practice.



The policy has been designed to reduce the tax gap by helping HMRC identify more legal interpretation issues at an earlier stage. An initial draft of the technical guidance was published in August 2021, explaining how HMRC will interpret and apply the Uncertain Tax Treatment (UTT) legislation and to help businesses comply with the new legislative requirements. A final version of the UTT guidance is expected by 28 February 2022.


Policy Background


A requirement is being introduced for qualifying large companies and partnerships (broadly companies and partnerships with UK turnover greater than £200 million per annum or a UK balance sheet total over £2 billion) to notify HMRC where they have adopted an uncertain tax treatment (UTT) in VAT, corporation tax, or certain income tax (partnership and PAYE) returns due to be filed on or after 1 April 2022.


An UTT is broadly defined by two ‘triggers’: -

  1. a provision made in the accounts, or

  2. that the position taken by the business is contrary to HMRC’s known interpretation or application of the law (as stated in the public domain or in dealings with HMRC).

The requirement to notify is subject to a £5 million de minimis threshold (per tax, per year) and two exemptions – a general exemption based on advance disclosure to HMRC (which meets certain requirements) and an exemption from corporation tax notification for certain UK group transactions. Discussions with HMRC prior to 1 April 2022 in respect of uncertainties in returns which will be filed after 1 April 2022 may satisfy the general exemption (record keeping will be essential).


Many areas of tax law involve judgement and the latest guidance contains some examples to help illustrate.


HMRC's Known Position


An amount is notifiable if the tax treatment applied in arriving at the amount relies (wholly or in part) on an interpretation or application of the law that is not in accordance with the way in which it is known that HMRC will interpret or apply the law (‘known position’). The entity must be in scope, the tax must be a relevant tax, the tax return must be relevant to UTT, the threshold condition must be met, and the limited exemptions must not apply


Example 1 – Land remediation relief


Gamma Ltd carries on a trade of building houses and in the financial year ending 31 October 2022 incurs expenditure of £56 million to remediate land that has been contaminated. Gamma Ltd makes a claim for land remediation relief, which leads to it deducting an additional 50% of the expenditure (£28 million) for CT purposes. However, there is uncertainty over whether some of this expenditure should be excluded from the claim, on the grounds that it does not meet the ‘polluter pays’ principle, which would result in only £26 million of the expenditure being available for a claim (resulting in a tax deduction of £13 million).


The tax advantage is the difference between the uncertain amount of land remediation relief (£28 million) and the expected amount (£13 million). The tax advantage would therefore be the difference of £15 million x the CT rate. If the CT rate is 19%, for example, this would result in a tax advantage of £15 million x 19% = £2.85 million. As the tax advantage is below the £5 million threshold, it would not be notifiable.


HMRC’s position may be known from any dealings with HMRC in respect of the business. These may include discussions with a HMRC Customer Compliance Manager, discussions with a HMRC Tax Specialist, a written view of the correct tax treatment from HMRC. Any views expressed directly to a particular taxpayer or regarding a particular situation, will not apply to other taxpayers or to other situations.


For the purposes of a tax return, it remains the case that the business is responsible for ensuring it has self-assessed in accordance with the law.


Outdated or Contradictory HMRC Publications


HMRC material is regularly reviewed and updated, and therefore over time HMRC’s known position may change. Any significant changes are initially highlighted by published briefs from HMRC. Guidance manuals are then updated. Each manual includes an updates section highlighting pages that have been altered.


Occasionally HMRC publications may be out of date or contain conflicting positions. This could be for several reasons, for example:

  • publications are superseded by new publications, but out of date publications may not have been marked as withdrawn or superseded

  • publications not yet properly updated to reflect changes in other publications

There is no requirement to notify HMRC of an uncertain tax treatment under the known position criterion if HMRC’s position is not known. In instances where HMRC’s position is unclear there will be no known position.


Where HMRC’s position is contradictory, the known position is to be taken as the most recently published statement of the known position.


Example 2 - Value Added Tax


The Upper Tribunal has dismissed HMRC’s appeal against a decision of the First-tier Tribunal on whether a supply was zero rated under schedule 8 VAT Act 1994.


A business making the same supplies may choose to self-assess for VAT based on an Upper Tribunal decision being the current understanding of the law, but if that tax treatment is not in line with HMRC’s known position (due to a position expressed in a Revenue & Customs Brief, for example) then, if the other conditions are met, notification would still be required under the uncertain tax treatment legislation.


Similarly, in light of the outcome at Upper Tribunal, organisations may choose to protect their positions by making claims for overpaid or under recovered VAT that is not in line with HMRC’s known position, then if the other conditions are met, notification would still be required under the uncertain tax treatment legislation.


Notification under the uncertain tax treatment legislation would be required as HMRC’s ‘known position’ has not changed. It would not be required if HMRC’s published position on the liability of the supply was changed to reflect the outcome at Upper Tribunal.


General Tax Provisions


Where an amount is uncertain by virtue of the different tax treatment for which a provision has been recognised in the accounts, the ‘expected amount’ is the amount provided for in the accounts which relates to the uncertain entry in the tax return. Where a provision covers multiple liabilities, of which the relevant uncertain tax treatment is only one of those, the expected amount is the amount of the provision that relates to the uncertain tax treatment.


Example 3 - Multiple Uncertainties


Delta Ltd incurs expenditure on several repairs to its land and buildings in the financial year ending 31 March 2023. There are multiple uncertainties regarding the tax treatment, including the liability of supplies provided by a fellow group company, whether the expenditure is of a capital or revenue nature for CT purposes, and on whether any of the expenditure qualifies for capital allowances. A provision recognising all these uncertainties is included in Delta Ltd’s accounts for the period ending 30 June 2024. Delta Ltd must consider whether each uncertainty individually is notifiable by reference to the threshold of £5m and the exemptions.


Reputable tax advisers will normally disclose and discuss in detail any uncertain tax treatments under normal disclosure requirements with their clients. These latest UTT rules raise the bar further to make sure larger businesses with significant tax risk formally notify HMRC and are kept informed by their advisors. Any business with concerns about the tax position taken in a computation or transaction should seek assurances on the robustness of advice received.


If you have any questions, or concerns, please do not hesitate to contact us.