Consultation response: Opportunities to Extend Uncertain Tax Treatment
The ATT has responded to the HMRC Consultation on Opportunities to Extend Uncertain Tax Treatment.
The requirement to report Uncertain Tax Treatment (UTT) issues to HMRC has existed since April 2022 for Corporation Tax, Value Added Tax and Income Tax (including PAYE) uncertainties encountered by large businesses, where a legal interpretation gives rise to a tax difference of more than £5m.
The Consultation explores the possibility and potential implications of expanding UTT notification requirements to individuals and trusts, and a broader range of taxes to reduce the legal interpretation element of the tax gap. It is proposed that the reporting threshold of £5m of tax difference would continue to apply across an extended UTT regime.
Additionally, the Consultation proposes introducing a new 'trigger' for UTT reporting, whereby a notification to HMRC would be required if HMRC's view on an area of legal uncertainty is not known. This would expand on existing 'triggers', which include a notification requirement where a taxpayer adopts an interpretation which differs to HMRC's known position.
ATT response
In our response, the ATT has stressed the importance of retaining the £5m UTT reporting threshold in order to prevent a disproportionate and unreasonable impact on individuals and trusts if they are brought into scope of an expanded UTT regime.
We also recommend leaving Inheritance Tax (IHT) out of any expansion of the taxes covered by UTT. IHT can involve long periods of time between tax planning taking place and the tax event (often death) occurring, IHT reporting duties on death often fall on people who were not involved in the planning, and because reporting may be unnecessary in the case of some IHT events (eg 'successful' Potentially Exempt Transfers) where there is no tax charge.
In respect of the proposed new 'trigger', the ATT is concerned about its practical implementation. As proposed, this addition risks creating an impractical burden on taxpayers. Instead, we recommend relying on the existing triggers at least until an extended UTT regime has had time to become established, and its effectiveness and impact on trusts and individuals can be properly assessed.
Finally, the ATT reminds HMRC of its responsibilities in areas of uncertainty and potentially different legal interpretation - UTT should not become a means for HMRC to excuse itself from proactively identifying such areas and clarifying them in either legislation or guidance.
UTT should also not require taxpayers to duplicate information already made available to HMRC, for instance via ‘white space note’ disclosures on tax returns. HMRC should make full use of information already reported by taxpayers before imposing additional compliance burdens on them.