UTT16200 - Exemptions: general exemption
Uncertain Tax Treatment (UTT) legislation (paragraph 18(1)) states:
‘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.’
Information is taken to be available to HMRC (paragraph 18(2)) if it is provided:
- By another regulatory requirement, or
- In dealings with HMRC
Another regulatory requirement
HMRC may become aware of the uncertainty due to other regulatory requirements to disclose or provide information (paragraph 18(2)(a)). If a business provides information under these other regulatory requirements, they will be exempt from notifying under UTT.
The Treasury may amend the list of other regulatory obligations, but they currently are:
- Schedule 11A to VATA 1994 (disclosure of avoidance schemes);
- Part 7 of FA 2004 (disclosure of tax avoidance schemes);
- Schedule 17 to FA 2009 (international movement of capital); Schedule 17 to F(No.2)A 2017 (disclosure of tax avoidance schemes: VAT and other indirect taxes); or
- regulations under section 84 of FA 2019 (international tax enforcement: disclosable arrangements).
Dealings with HMRC
If HMRC is already aware of the uncertainty and how the business plans to treat it, then the business need not bring it to HMRC’s attention through the notification process.
The exemption applies per ‘amount’. Therefore, there may be more than one ‘uncertain amount’ (paragraph 10(1)) in a return (paragraph 8(2)(a)) or relating to a return (paragraph 8(2)(b)) that satisfies the criteria to notify. The exemption must be considered separately to the amounts and may be satisfied for one ‘amount’, but not the other. For example, the business may have discussed with HMRC the uncertainty of deductibility for one item, but not regarding the deductibility for another unrelated item. The exemption would not apply to the latter.
It is common for large businesses to engage with HMRC on areas of uncertainty. This often occurs through the Customer Compliance Manager (CCM) for those businesses with a CCM. Businesses without a CCM can initiate pre-notification conversations with the MSB Customer Support Team via the link on GOV.UK. Both CCMs and the MSB Customer Support Team will draw on the support of tax specialists, data analysts, solicitors, audit specialists, trade sector experts, forensic accountants and others where required to help businesses understand if they are required to notify.
The discussion should include all or substantially all the information that would otherwise be provided in a notification (UTT15100).
To avoid uncertainty as to the application of the exemption, we would recommend that taxpayers make clear that the discussion is to avoid the requirement to notify, and the discussion is documented.
The exemption will apply when the same information is provided as would have been provided in a formal notification.
Similarly, if a VAT error correction notice includes all the information that would otherwise be included in a formal notification, the exemption would apply.
The onus is on the qualifying company or partnership to draw attention to any amounts or details. This is particularly true if there is some doubt as to the interpretation of that information. It is not sufficient for a company or partnership to simply to provide the information if:
- it is hidden away or
- it is obscure.
Confirmation by HMRC that the exemption is met
Where a business (or their agent) approaches HMRC, via the CCM or the MSB Customer Support Team, to provide information and discuss an uncertain tax issue, HMRC will confirm in writing when the general exemption has been met. In some cases, it may require some dialogue to fully explore the issues and ensure HMRC is in possession of all (or substantially all) of the information that would be provided in a formal notification.
It is also essential that, if there are any changes to the transaction itself, or to the tax treatment of it after discussion has taken place, that these are notified to HMRC. Changes to the underlying transaction or tax treatment of it would invalidate the exemption.
Clearances and the general exemption
HMRC may also become aware of the uncertainty through the non-statutory clearance process. If the business treats the transaction in accordance with how it was outlined in the clearance request, then it need not notify. However, if there is a change in either the transaction(s) covered by the clearance or their treatment for tax purposes, the business will need to inform HMRC of these changes for the general exemption to be met.
The Banking Code and the general exemption
Banks that are signatories to the Banking Code of Conduct may make an approach to HMRC to discuss the application of the Code to a transaction in real time. Where they do so, they will not be required to notify if discussions with HMRC around the uncertain tax treatment meet the criteria for the general exemption (UTT16200).
If the bank chooses to discuss with HMRC an uncertain tax treatment under the Code, and all the information has been provided in these discussions, the general exemption (UTT16200) would apply, and the bank would not need to notify the uncertainty under UTT.
Discovery and the general exemption
A notification is regarded as information provided to HMRC for the discovery provisions. However, whether that provides protection from later discovery will depend on the completeness of the information and how it was presented to HMRC.
TMA70/S29(6)
FA98/SCH18/PARA44(2)
Uncertainties discussed with HMRC before the introduction of UTT
For uncertainties included in returns due on or after 1 April 2022 but which are notified to HMRC prior to 1 April 2022 (for example, via discussion with a CCM), customers do not need to notify again after the regime comes into effect.
Customers should aim to indicate to HMRC in pre-April 2022 interactions that they are seeking to satisfy the requirements and to meet the general exemption. In cases where customers engage with HMRC before UTT is implemented, a record of the interaction should be held as evidence of the disclosure having been made. Where possible, it would be beneficial for this to be shared with HMRC to avoid future enquiries.
The exemption will apply when the same information is provided as would have been provided in a formal notification.
Example 1
During a regular call with a Customer Compliance Manager, a company shared details relating to Research & Development Expenditure Credit (RDEC) claims they were making for several R&D projects the company had undertaken. The company had uncertainties that some of the projects undertaken met the criteria to count as a R&D project, as they were contrary to HMRC guidance.
Following the call, the customer provided further details as per the request of the CCM to enable further consideration of the claim.
The CCM provided confirmation of what claims HMRC considered to qualify as R&D and which costs could be included. However, the company felt that the projects did qualify as R&D and claimed on the basis they set out to their CCM.
In this scenario the general exemption has been met because the company told their CCM all the necessary information relating to the uncertainty and how they proposed to treat it.
Example 2
A property development company asks the CCM to confirm that the VAT option to tax will not be disapplied if the building is rented out. Later, the intended occupier changes and it is arguable that they could be regarded as a financer of the development for the purposes of the option to tax disapplication rules.
In this scenario the general exemption has not been met. The company did not make available to HMRC the information about the new occupier and that they could be potentially regarded as a financier of the development for the purposes of the option to tax disapplication rules, being information that would have been included in the notification if it had been required to be given.
Example 3
A customer contacts the HMRC Mid-sized Business Customer Support Team through the Government Gateway identifying that it wishes to discuss an issue where Uncertain Tax Treatment might apply and would like to discuss this seeking to satisfy the general exemption. A Mid-sized Business VAT tax specialist is appointed to discuss the matter which involves the Interpretation of Notice 701/14 Food Products whereby the customer has determined an item to be zero rated.
Following an exchange of correspondence, the customer provided further details at the request of the tax specialist for consideration of the issue. The tax specialist provided confirmation of HMRC’s position, that the product should be standard rated, however the company decided to proceed on the basis as it originally set out. In this scenario the general exemption has been met because the company has provided HMRC with all of the necessary information relating to the uncertainty and how it proposed to report that uncertainty in its return.