Finance Act 2022

PART 2 U.K. Requirement to notify HMRC of uncertain tax treatment

Requirement to notify U.K.

8 (1) Sub-paragraph (2) applies if—

(a) a relevant return is delivered to HMRC for a financial year by, or in respect of, a company or partnership, and

(b) the company or partnership is a qualifying company, or qualifying partnership, in that financial year.

(2) The company or partnership must notify HMRC if the relevant return includes an amount (including nil) brought into account for the purposes of a relevant tax and—

(a) at the time the return is delivered to HMRC, the amount is an uncertain amount (see paragraph 10), or

(b) after the return is delivered to HMRC, the amount becomes an uncertain amount by virtue of paragraph 10(2) (accounting provision made to reflect the probability that a different tax treatment will be applied to a transaction to which the amount relates).

(3) In sub-paragraph (2)—

(a) the reference to an amount included in a relevant return includes the inclusion of that amount as a result of an amendment of the return (other than amendment made by HMRC), and

(b) in such a case, references to the return being delivered to HMRC are to be read as references to HMRC being notified of the amendment.

(4) The notification requirement in sub-paragraph (2)—

(a) applies separately in relation to each relevant tax;

(b) applies only if the threshold test in paragraph 11(2) is met;

(c) is subject to the general exemption in paragraph 18;

(d) is subject to the exemption in paragraph 19 for certain group transactions;

(e) must be complied with on or before the date determined in accordance with paragraph 9.

(5) Where, in relation to a relevant tax, a company or partnership is required by sub-paragraph (2)(a) to notify HMRC about more than one amount that is included in a relevant return delivered for the financial year in question (other than as a result of an amendment of the return after the notification is given), a single notification must be given that covers each such amount.

(6) A notification under sub-paragraph (2) must be given by such means, and in such form, and include such information, as is specified in a notice published by HMRC.

Deadline for notification U.K.

9 (1) The time by which a notification required by paragraph 8(2) must be given to HMRC is determined in accordance with the following table—

Case	Deadline for notification
Notification under paragraph 8(2)(a) of an amount included in a company tax return delivered to HMRC for a financial year	On or before the later of— (a) the filing date for the return (within the meaning given by paragraph 14 of Schedule 18 to FA 1998), or (b) if the period for which the return is required to be made is a period for which the company is required to deliver accounts under the Companies Act 2006, the last day for the delivery of those accounts to the registrar of companies
Notification under paragraph 8(2)(a) of an amount included in a partnership return delivered to HMRC for a financial year	On or before the date on which the return is required to be made
Notification under paragraph 8(2)(a) of an amount included in a PAYE return delivered to HMRC for a financial year	On or before the date on which the last PAYE return for the financial year is required to be made
Notification under paragraph 8(2)(a) of an amount included in a VAT return delivered to HMRC for a financial year	On or before the date on which the last VAT return for the financial year is required to be made
Notification under paragraph 8(2)(b) of an amount included in a company tax return or partnership return delivered to HMRC for a financial year	On or before the date (determined in accordance with this table) by which the notification would be required if— (a) the notification were required by paragraph 8(2)(a), and (b) the return were delivered to HMRC for the financial year in which the accounting provision is recognised in the accounts of the company or partnership (see paragraph 10(2)).
Notification under paragraph 8(2)(b) of an amount included in a PAYE return or VAT return delivered to HMRC for a financial year	On or before the date (determined in accordance with this table) by which the notification would be required if— (a) the notification were required by paragraph 8(2)(a), and (b) the return were delivered to HMRC for the financial year following the financial year in which the accounting provision is recognised in the accounts of the company or partnership.

(2) In the table, references to a notification under paragraph 8(2)(a) in relation to a return do not include references to a notification required as a result of an amendment of the return (see instead sub-paragraph (3)).

(3) Where the notification is required by paragraph 8(2)(a) and concerns an amount included in a relevant return as a result of an amendment of the return, the notification must be given before the end of the period of 30 days beginning with the day on which HMRC is notified of the amendment.

Uncertain tax treatment U.K.

10 (1) For the purposes of this Part, an amount brought into account by a company or partnership for the purposes of a relevant tax is an “uncertain amount” if either or both of sub-paragraphs (2) and (3) apply in relation to the amount.

(2) This sub-paragraph applies if provision has been recognised in the accounts of the company or partnership to reflect the probability that a different tax treatment will be applied to a transaction to which the amount relates.

(3) This sub-paragraph applies 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 would interpret or apply the law.

(4) For the purposes of sub-paragraph (3), HMRC’s position on a matter is taken to be “known” by a company or partnership if it is apparent from—

(a) guidance, statements or other material of HMRC that is of general application and in the public domain, or

(b) dealings with HMRC by or in respect of the company or partnership (whether or not they concern the amount in question or the transaction to which the amount relates).

Threshold test U.K.

11 (1) This paragraph and paragraphs 12 to 17 apply for determining, in relation to an uncertain amount included in a relevant return, whether the threshold test is met (see paragraph 8(4)(b)).

(2) The threshold test is met if it is reasonable to conclude that, by bringing the uncertain amount into account for the purposes of a relevant tax—

(a) the company or partnership would obtain a tax advantage it would not obtain if the uncertain amount were the expected amount, and

(b) in the relevant period, the aggregate value of all such tax advantages that would be obtained by bringing the uncertain amount, and any related uncertain amounts, into account is more than £5 million.

(3) For these purposes—

(a) “tax advantage”—

(i) in relation to income tax or corporation tax, has the meaning given by paragraph 12;

(ii) in relation to VAT, has the meaning given by paragraph 13;

(b) the value of the tax advantage is determined in accordance with paragraph 14;

(c) the “expected amount”, in relation to an uncertain amount, is determined in accordance with paragraph 15;

(d) the “relevant period” is determined in accordance with paragraph 16;

(e) whether two or more uncertain amounts are “related” is determined in accordance with paragraph 17.

(4) Where the relevant period is more than or less than 12 months, the sum specified in sub-paragraph (2)(b) is to be proportionately increased or reduced.

(5) The Treasury may by regulations amend sub-paragraph (2)(b) by substituting a different sum for the sum that is for the time being specified.

“Tax advantage” in relation to income tax or corporation tax U.K.

12 For the purposes of this Part, a “tax advantage” in relation to income tax or corporation tax includes—

(a) a relief or increased relief from tax;

(b) repayment or increased repayment of tax;

(c) avoidance or reduction of a charge to tax or an assessment to tax;

(d) avoidance of a possible assessment to tax;

(e) deferral of a payment of tax or advancement of a repayment of tax;

(f) avoidance of an obligation to deduct or account for tax.

“Tax advantage” in relation to VAT U.K.

13 (1) For the purposes of this Part, a company or partnership obtains a tax advantage in relation to VAT if—

(a) in a prescribed accounting period, the amount by which the output tax accounted for by the company or partnership is less, or is accounted for later, than would otherwise be the case;

(b) the company or partnership obtains a VAT credit when it would otherwise not do so, or obtains a larger credit or obtains a credit earlier than would otherwise be the case;

(c) in a case where the company or partnership recovers input tax as a recipient of a supply before the supplier accounts for the output tax, the period between the time when the input tax is recovered and the time when the output tax is accounted for is greater than would otherwise be the case;

(d) in a prescribed accounting period, the amount of the company’s or partnership’s non-deductible tax is less than it otherwise would be;

(e) the company or partnership avoids an obligation to account for VAT.

(2) In sub-paragraph (1)(d) “non-deductible tax”, in relation to a company or partnership, means—

(a) input tax for which the company or partnership is not entitled to credit under section 25 of VATA 1994;

(b) any VAT incurred by the company or partnership which is not input tax and in respect of which the company or partnership is not entitled to a refund from the Commissioners for Her Majesty’s Revenue and Customs by virtue of any provision of VATA 1994.

(3) For the purposes of sub-paragraph (2)(b), the VAT “incurred” by a company or partnership is—

(a) VAT on the supply to the company or partnership of any goods or services;

(b) VAT paid or payable by the company or partnership on the importation of any goods.

(4) Terms used in this paragraph which are defined in section 96 of VATA 1994 have the meanings given by that section.

Value of a tax advantage U.K.

14 (1) The value of a tax advantage is the additional amount due or payable in respect of tax if the uncertain amount were the expected amount (subject to the following provisions of this paragraph).

(2) The following are ignored in calculating the value of the tax advantage—

(a) relief under Part 5 (group relief) or 5A (group relief for carried-forward losses) of CTA 2010, and

(b) any relief under section 458 of CTA 2010 (relief in respect of repayment etc of loan) which is deferred under subsection (5) of that section.

(3) To the extent that the tax advantage has the result that a loss is recorded for the purposes of corporation tax or income tax, and the loss has been wholly used to reduce the amount due or payable in respect of that tax, the value of the tax advantage is determined in accordance with sub-paragraph (1).

(4) To the extent that the tax advantage has the result that a loss is recorded for the purposes of corporation tax or income tax, and the loss has not been wholly used to reduce the amount due or payable in respect of that tax, the value of the tax advantage is—

(a) the value under sub-paragraph (1) of so much of the tax advantage as results from the part (if any) of the loss which is used to reduce the amount due or payable in respect of tax, and

(b) 10% of the part of the loss not so used.

(5) Sub-paragraphs (3) and (4) apply both—

(a) to a case where no loss would have been recorded but for the tax advantage, and

(b) to a case where a loss of a different amount would have been recorded (but in that case, sub-paragraphs (3) and (4) apply only to the difference between the amount of the loss recorded and the different amount that would have been recorded).

(6) To the extent that a tax advantage results in a loss recorded for the purposes of corporation tax or income tax, the value of it is nil where, because of—

(a) the nature of the loss, or

(b) the circumstances of the company or partnership that has brought the uncertain amount into account for tax purposes,

there is no reasonable prospect of the loss being used to support a claim to reduce a tax liability (of any person).

The “expected amount” U.K.

15 (1) For the purposes of the threshold test in paragraph 11(2), the “expected amount”, in relation to an uncertain amount, is the amount that it is reasonable to conclude the uncertain amount would be were the tax treatment applied in arriving at the amount—

(a) where the uncertain amount is uncertain by virtue of paragraph 10(2), the different tax treatment for which provision has been recognised in the relevant accounts;

(b) where the uncertain amount is uncertain by virtue of paragraph 10(3), a tax treatment that is wholly in accordance with HMRC’s known interpretation and application of the law.

(2) Where more than one tax treatment is wholly in accordance with HMRC’s known interpretation and application of the law, sub-paragraph (1)(b) applies by reference to whichever of those treatments would give the least amount of tax advantage for the purposes of the threshold test.

(3) Where sub-paragraph (1) gives more than one expected amount, because the uncertain amount is uncertain by virtue of both of sub-paragraphs (2) and (3) of paragraph 10, the threshold test applies by reference to whichever of those expected amounts would give the most amount of tax advantage.

(4) Paragraph 10(4) applies for the purposes of sub-paragraph (1)(b) as it applies for the purposes of paragraph 10(3).

Relevant period U.K.

16 (1) For the purposes of the threshold test in paragraph 11(2), the “relevant period” in relation to an uncertain amount included in a relevant return is—

(a) where the relevant return is a company tax return, the period for which the return is made (see paragraph 5 of Schedule 18 to FA 1998);

(b) where the relevant return is a partnership return, the financial year for which the return is delivered to HMRC;

(c) where the relevant return is a PAYE return, the period corresponding to the length of the financial year for which the return is delivered to HMRC, ending with the last day of the last period for which a PAYE return is required to be made that falls wholly within that financial year;

(d) where the relevant return is a VAT return, the period corresponding to the length of the financial year for which the return is delivered to HMRC, ending with the last day of the last prescribed accounting period falling wholly within that financial year.

(2) In sub-paragraph (1)(d), “prescribed accounting period” has the meaning given by section 25(1) of VATA 1994.

Related amounts U.K.

17 (1) For the purposes of the threshold test in paragraph 11(2), two uncertain amounts are related if—

(a) both amounts are included in the same relevant return, or a relevant return of the same description delivered to HMRC for the same financial year,

(b) both amounts relate to the same relevant tax, and

(c) the tax treatment applied in arriving at one amount is substantially the same as the tax treatment applied in arriving at the other amount.

(2) Where the relevant return is a return under PAYE regulations, national insurance contributions are to be treated as income tax for the purposes of this paragraph (and accordingly, for the purposes of determining the aggregate value of the tax advantages mentioned in paragraph 11(2)(b)).

General exemption U.K.

18 (1) A company or partnership is not required by paragraph 8(2) to notify HMRC about an amount included in a relevant return if it is reasonable for the company or partnership to conclude that HMRC already have available to them all, or substantially all, of the information relating to that amount that would have been included in the notification if it had been required to be given.

(2) For these purposes, information is to be taken to be available to HMRC if it has become available by any means, including by virtue of—

(a) information provided under any of the following provisions—

(i) Schedule 11A to VATA 1994 (disclosure of avoidance schemes);

(ii) Part 7 of FA 2004 (disclosure of tax avoidance schemes);

(iii) Schedule 17 to FA 2009 (international movement of capital);

(iv) Schedule 17 to F(No.2)A 2017 (disclosure of tax avoidance schemes: VAT and other indirect taxes);

(v) regulations under section 84 of FA 2019 (international tax enforcement: disclosable arrangements), or

(b) dealings with HMRC by or in respect of the company or partnership.

(3) The Treasury may by regulations amend sub-paragraph (2)(a) to add to the provisions mentioned or to remove or modify a provision mentioned.

Exemption for certain group transactions U.K.

19 A company is not required by paragraph 8(2) to notify HMRC about an uncertain amount included in a relevant return if—

(a) the relevant tax for the purposes of which the amount is brought into account is corporation tax,

(b) the amount relates to a transaction between the company and one or more other companies at a time when all of the companies are members of the same group (see paragraph 3), and

(c) the net effect of the transaction is that the value of the tax advantages (if any) that would be obtained by the group, taken as a whole, does not exceed the sum for the time being specified in paragraph 11(2)(b).