By Isabella Colletta

The Chartered Institute of Taxation (CIOT) has called on the UK government to rethink a proposal which would require businesses to identify HMRC if they have adopted an uncertain tax treatment. Under the terms of the proposed policy, firms would have to notify uncertain tax treatments separately from their tax return.

Whilst HMRC have said that this would help reduce the tax not collected as a result of businesses adopting tax treatments that HMRC don’t agree with, CIOT have said that the policy is unclear.

CIOT has set out its concerns in a submission to a recent HMRC consultation on the policy, and they have suggested that a lack of clarity about how the proposal would interact with the current tax system highlights issues within the proposed compliance. The organisation has also said that it is not clear how the proposed regulation will close the legal tax interpretation gap, even if an objective definition of uncertain tax treatment is found.

CIOT tax policy director John Cullinane urged HMRC to rethink the proposed policy, saying: “Given the many challenges businesses are facing because of COVID-19, now is not the time to add to compliance burdens unless the measure is better justified. This proposed compliance obligation is inherently unclear and unfair. 

“Businesses would not be able to comply with it with any confidence or certainty that they have got it right: it is unreasonable to expect these taxpayers to form a judgement on what HMRC may or may not do. It is not encouraging for the cooperative relationships that HMRC is keen to foster with businesses if, even when a business embraces collaborative and cooperative compliance, the Government still imposes new rules which increase significantly the businesses’ compliance burden.”

In addition, the proposal would allow HMRC to disagree with a firm’s reasonable tax position, and therefore open an enquiry with a possible penalty for not notifying the tax agreement. CIOT has further recommended in its discussions with HMRC that the policy be amended so that a penalty would be cancelled if the enquiry found a firm to have no further tax due.

John Cullinane added: “A compliance obligation along these lines needs a clear and objective definition of uncertain tax treatment, with further clarity around the proposed exclusion for ‘what HMRC already knows’. We suggest limiting the proposal to corporation tax at least initially.  We understand that HMRC is sympathetic to the idea of reducing the taxes to which the obligation would apply but may wish to also include VAT and PAYE. There also needs to be additional exemptions to the requirement to notify to better focus the compliance obligation and a strong reasonable excuse defence.”