This week's opinion: 19 March 2020

From April 2021 large business will be required to notify HMRC when they take a tax position which HMRC is likely to challenge. That statement, tucked away at para 2.260 of the Red Book was perhaps the most interesting tax development in the Budget. Disclosure has always been a complex issue – a colleague reminded me that Veltema is already a prompt to disclose contentious points. But a legal obligation is different. When the Keith Committee reviewed powers in the 1980s it proposed that taxpayers should have to disclose when they had given themselves the benefit of the doubt in a tax filing. That was rejected, but the government clearly thinks that the concept is worth revisiting.

Various questions arise. How will businesses know what HMRC may challenge? Will those who know more about HMRC’s views face a greater burden? It would be one thing to have to disclose an interpretation contrary to what was published HMRC’s manuals, quite another if the view was known only to members of a particular HMRC forum. 

Further, what is a tax position? Is it only a technical argument or will it include facts? Most enquiries into large businesses come down to transfer pricing. A senior tax director I spoke to said that if every return had to include a statement along the lines of ‘HMRC may challenge the transfer pricing’, the regime would achieve nothing. 

The consultative process needs to make a realistic assessment of whether the idea is worth pursuing. Not all readers will advise large companies, but I would anticipate that, eventually, the principle would be widened to cover most if not all taxpayers. So everybody has an interest in seeing how this develops.