Notification of Uncertain Tax Treatment by Large Businesses in the UK

August 06, 2021

On 20 July 2021 (or so-called “Legislation Day 2021”), amongst a raft of other items, the UK government published its response to its second consultation on proposals for a new legislative regime that will require large businesses to notify Her Majesty’s Revenue and Customs (“HMRC”) of uncertain tax treatments. 

The uncertain tax treatment policy is designed to improve HMRC’s ability to identify uncertain tax treatments adopted by large businesses and to enable HMRC to challenge such uncertain tax treatment sooner in order to raise additional tax revenue for the government. In the government’s view, one of the major drivers of uncollected tax is the differing legal interpretation positions taken by some large businesses and HMRC regarding tax due.

The government also published draft legislation for further comment and consultation with the intention that the new legislation will be included in the Finance Bill 2021-22 with effect from 1 April 2022.

The draft legislation is open for comment until 13 September 2021.

Here is our high level summary of the new uncertain tax treatment policy based on the draft legislation.

The New Notification Obligation

“Large businesses” will have to notify HMRC if a tax return delivered to HMRC by or in respect of the business for that financial year includes an amount (including nil) brought into account for the “relevant tax” that is an “uncertain amount”.

A notification must be given (a) where the relevant return is an annual return, on or before the date on which the return is required to be made; or (b) where the relevant return is not an annual return, on or before the date on which the last relevant return for the financial year in question is required to be made.

Relevant Taxes Covered

The relevant taxes for this regime are: (1) corporation tax;1 (2) value added tax; and (3) income tax (including PAYE).

Large Businesses

A “large business” is a company (or group of companies) or partnership in any financial year with:

  1. A “UK turnover” (on the basis of a just and reasonable apportionment) of more than £200 million per annum in the previous financial year (the UK Turnover Test); and/or
  2. A “UK balance sheet” total (on the basis of a just and reasonable apportionment) of over £2 billion in the previous financial year (the UK Balance Sheet Test).

Uncertain Tax Treatment

Broadly, uncertain tax treatments are treatments that are contrary to HMRC’s known position or where there is uncertainty about how a transaction should be treated for tax purposes. In the draft legislation, an “uncertain amount” is an amount brought into account for the purposes of a relevant tax which meets one of the following three tests:

  1. Accounts Provision: if provision has been recognised in the accounts of the company or partnership, in accordance with generally accepted accounting practice, to reflect the probability that a different tax treatment will be applied to the transaction to which the amount relates; or
  2. HMRC’s Known Interpretation: 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; or
  3. Tax Tribunal Interpretation: if it is reasonable to conclude that, if a tribunal or court were to consider the tax treatment applied in arriving at the amount, there is a substantial possibility that the treatment would be found to be incorrect in one or more material respects.

For the purposes of the above tests, it is provided in the draft legislation that HMRC’s position on a matter is taken to be “known” by a large business if it is apparent from: (1) guidance, statements or other material of HMRC that is of general application and in the public domain; or (2) dealings with HMRC by or in respect of the large business (whether or not they concern the amount in question or the transaction to which the amount relates). We understand from the explanatory note that in instances where HMRC’s position is unclear – or two different expressions appear contradictory – there will be no ‘known position,’ and the second condition will not be met. In recognition of the increased importance of guidance when the new tax policy on uncertain tax treatment is implemented, HMRC is also taking the opportunity to improve its technical guidance set out in the manuals.

For the purposes of the Tax Tribunal Interpretation, it is immaterial whether or not HMRC or anyone else is likely to challenge the amount or its tax treatment.

Threshold Test

An uncertain amount must be notified to HMRC only where it exceeds the threshold test.

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:

  1. The large business would obtain a tax advantage2 it would not obtain if the uncertain amount were the “expected amount” (broadly, the amount assuming HMRC’s interpretation, accounts provision or tribunal view is correct if contrary to the large businesses’ view); and
  2. 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.


A notification to HMRC will not be required in the following circumstances:

  1. HMRC Already Knows: if it is reasonable for the large business to conclude that HMRC already has available to it 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 to be taken to be available to HMRC if it has become available by any means, including by virtue of: (a) any disclosure of tax avoidance schemes, including under any mandatory disclosure regimes or (b) dealings with HMRC by or in respect of the large business.
  2. Certain Group Transactions: if the amount relates to a transaction between the company and one or more other companies at a time when all the companies are members of the same group, and where the net difference across a group for corporation tax is less than £5 million.
  3. UK PE: if the amount represents an attribution of profits to a UK permanent establishment of a non-UK company, and where the amount is uncertain only by virtue of Tax Tribunal Interpretation.
  4. Transfer Pricing: Certain transfer pricing calculations are excluded from the notification obligation where the amount is uncertain by virtue of Tax Tribunal Interpretation only by reason of a tax treatment that concerns the choice or application of a transfer pricing method.


The first failure to notify gives rise to a penalty of £5,000. Thereafter, a second failure to notify gives rise to a penalty of £25,000 and any further failure to notify gives rise to a penalty of £50,000.

Liability to a notification penalty does not arise if the person who would otherwise be liable to the penalty satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that the person had a reasonable excuse for that failure.


The government expects this new tax policy to apply to around 2,300 businesses (assessed as of June 2021) given the UK turnover or balance sheet test. It appears that the government is firmly of the view that the tax policy will not significantly increase the administrative burden of large business who are already open and transparent with HMRC, because in the government’s view such businesses will often have already been in discussion with HMRC on uncertain tax matters and will thereby be exempt from notifying under this new measure. This is particularly the case for taxpayers with a Customer Compliance Manager assigned to them by HMRC. For taxpayers without a Customer Compliance Manager, HMRC intend to utilise their existing Customer Engagement Team to provide a structured opportunity to discuss tax uncertainties, so that they can also benefit from this exemption.

The overall effect of this measure appears then to be to drive behavioral change and strongly encourage frequent informal engagement and discussions with HMRC around areas of legal uncertainty or in situations where tax law is being applied on complicated fact patterns.

We understand that the government intends to publish additional guidance to assist large businesses in the implementation and compliance with this new regime, and particularly the three notification triggers as to what makes an amount uncertain. An area of intense uncertainty remains around how the third test referred to above will be interpreted. In other words, when is it reasonable to conclude that there is a substantial possibility that a tribunal or court would find that a certain tax treatment is incorrect in one or more material respects? What level of opinion would need to be obtained on a matter to feel confident that this test is not triggered? There is a certain irony around introducing tax legislation targeted at identifying uncertain tax treatments which is itself so uncertain it needs substantive additional guidance…

If you have questions, please reach out to one of the Dechert lawyers listed below, or your usual Dechert contact.


1) For these purposes, corporation tax does not include the surcharge on banking companies, CFC attributions or the bank levy.

2) Broadly defined to include any relief from tax, any repayment of tax, avoidance of a charge to tax, deferral of a payment of tax, or avoidance of an obligation to deduct or account for tax.

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