Taxpayers encouraged to ensure returns are correct and complete

As reported by ICAEW

HMRC has published guidance setting out what it expects of taxpayers who are considering applying novel or improbable interpretations of the law, or are uncertain how the law applies when submitting a tax return or similar document.

Guidelines for Compliance (GfC) set out HMRC’s view of “complex, widely misunderstood, or novel areas of the tax rules”. There is no requirement to follow the guidelines. However, HMRC says that doing so will help taxpayers get their “taxes right first time”, reducing the risk of a compliance check and the taxpayer having to pay additional tax, interest and penalties where an error has been made.  

The latest set of guidelines (GfC13) have been published to help taxpayers ensure that tax returns and other documents submitted to HMRC are correct and complete. HMRC says that GfC13 explains “HMRC’s existing view” and does “not represent a change in the law or HMRC’s policy”. 

Using GfC13 

HMRC says that taxpayers may benefit from reading the guidelines where they are: 

• considering applying a novel or improbable interpretation of the law; or

• unclear as to the correct interpretation of the law despite attempting to resolve the uncertainty. 

  
  

HMRC views a novel interpretation of the law as “one that a court or tribunal has not considered” and believes that the taxpayer, having taken advice, should believe that “the courts and tribunals are most likely to find that interpretation to be correct” before adopting it.  

For HMRC, an interpretation of the law is improbable if the taxpayer believes “that it’s unlikely the courts and tribunals would agree with it”. In HMRC’s view, the taxpayer “should not file a return based on an improbable interpretation of the law”. 

The guidelines include practical examples of legal uncertainty, finely balanced arguments and novel and improbable arguments of the law. 

Seeking help from HMRC or others 

The guidance provides a summary of the circumstances in which HMRC may be able to help the taxpayer decide on the tax treatment of an event or transaction, for example, following an application for non-statutory clearance.  

HMRC recommends that the taxpayer seeks professional advice if they have made use of HMRC’s guidance and advice and are still unsure of the correct tax position. HMRC says that the taxpayer is obliged “to choose an adviser who is trained and competent for the task in hand” and should give the adviser “all relevant information including a full and accurate set of the facts”.  

Advice is given on the steps that the taxpayer may wish to take in acting on the advice, including checking they understand the advice and asking themselves if it’s prudent and reasonable to believe that the advice is correct. Additional steps are suggested where the taxpayer is considering adopting a novel or uncertain interpretation of the law.  

HMRC reminds the taxpayer that the accuracy of the return remains their responsibility even where professional advice has been taken.  

Dealing with an unresolved uncertainty 

Where the taxpayer has tried and failed to resolve a significant uncertainty, or has applied a novel legal interpretation, HMRC recommends that the taxpayer provides the following information alongside their tax return: 

• their name and unique taxpayer reference number; and

• a description of:

  • the issue;

  • the interpretation applied or position taken; and

  • the effect their choice of treatment had on the amount of tax or duties chargeable, credits claimed, or losses declared. 

    
    

The information may be provided: 

• for income tax self assessment (ITSA), in the “white space” of the ITSA tax return;

• for corporation tax, in the supporting computations or in an attachment submitted with the return; or

• for other taxes and duties, in the most appropriate of the options given in the guidelines.  

  
  

What HMRC expects from tax advisers 

The guidelines remind tax professionals of their obligations under HMRC’s Standard for Agents and, where appropriate, Professional Conduct in Relation to Taxation (PCRT). Compliance with PCRT is mandatory for ICAEW members who advise on UK tax matters.