BKM507100 - HMRC operation of the code: code approaches

Part 4 of the Code encourages the bank to disclose to HMRC any proposed transaction where, on the bank’s analysis, the tax result may be contrary to the intentions of Parliament. The bank can discuss the proposed transaction with its CCM before it takes place. A bank which does not have a CCM should approach its usual point of contact or make a submission to the following email address: midsizebanks.wmbc@hmrc.gov.uk

A Code approach can be made on behalf of a bank by an agent, but any such approach must name the bank involved.

The bank should provide sufficient information to enable HMRC to understand the proposed transaction, and at the very least this should include the sort of details required for a disclosure under the Disclosure of Tax Avoidance Schemes, FA04/PART7 (DOTAS) regime:

  • a summary of the proposed transaction or transactions;
  • information explaining the elements of the proposed transaction and how the expected tax advantage arises;
  • and the statutory provisions on which the tax advantage is based.

In addition, the bank should:

  • set out the commercial purpose of the transaction
  • set out its analysis of the intentions of Parliament in enacting the relevant legislation and explain how this analysis applies to the proposed transaction.

The bank should be prepared to help HMRC understand how the tax advantage arises if HMRC wishes to discuss the proposed transaction.

Where the approach is made before a transaction takes place, the disclosure should be made as far in advance as is practical to allow HMRC time to review the available information and comment on it. How far in advance will be a matter for the bank’s judgement, taking account of the circumstances and the complexity of the proposed transaction. HMRC may wish to discuss the proposed transaction in detail before commenting. HMRC recognises that commercial transactions sometimes happen very quickly and, in these cases, there may be little opportunity to disclose the transaction in advance.

HMRC will generally respond to Code approaches within 28 days. Where there is a commercial imperative to agree the Code position more quickly than this, HMRC will endeavour to meet this requirement. Where the complexity of the issues raised means that more time may be needed, HMRC will indicate to the bank at the outset that a decision is likely to take longer. If HMRC needs to ask for more information, the time taken by the bank to provide that information is excluded from the response time. The bank should make reasonable efforts to give HMRC sufficient time to comment, but banks do not need permission or clearance from HMRC and are under no obligation to await a response where commercial considerations require a business decision.

However, banks should be aware of the potential consequences of undertaking a transaction that may be determined by HMRC to be Code Red. In particular, under the arrangements set out in the Governance Protocol, the issue may be escalated to HMRC Commissioners to make a final determination on whether there is Code non-compliance, and if so, whether the bank concerned should be named.

HMRC acknowledges that it is not commercially practicable or realistic for banks to seek to discuss every single transaction with HMRC and there will be occasions where banks will need to exercise judgement when considering their Code obligations. Where a bank has carried out reasonable and proportionate due diligence of the legislation, underlying policy and supporting statements, and reasonably concludes that a transaction was not contrary to the intentions of Parliament, the bank will be compliant with the Code even if HMRC subsequently disagrees with this assessment. HMRC will take into account any evidence that the bank provides which shows it has conducted this assessment.