When submitting a tax return, taxpayers must sign a declaration that the return is correct and complete to the best of their knowledge. If you make a declaration that you ought reasonably to know is incorrect you could be exposed to penalties or worse.
It is inevitable that all taxpayers with complex group structures or transactions will need to make judgements on tax positions that are either unclear or untested, or where they dispute HMRC’s interpretation.
HMRC’s Guidelines for Compliance 13 (GfC13) provide practical advice on how to meet this obligation. All taxpayers within the SAO regime or dealing with complex or uncertain tax arrangements. should consider the guidance.
HMRC Expectations
- Legal Declaration: Every tax return or document filed with HMRC requires a legal declaration that the information provided is correct and complete to the best of your knowledge. This is a statement HMRC relies on, and it carries legal consequences.
- Judgement Required: If the law is unclear or open to more than one interpretation, you must choose the position you genuinely believe is most likely correct and be able to evidence this. You cannot simply pick the most financially advantageous position or one that is merely arguable.
- Improbable Positions: Do not adopt an interpretation you believe a court is unlikely to agree with.
- Penalties: If you file a position that you do not reasonably believe to be correct, HMRC will take this into account when they consider penalties for any inaccuracies. Knowingly false declarations could have consequences for fraud allegations.
Dealing with Uncertainty
- Novel Interpretations: If your return involves a new or untested interpretation of tax law, i.e. one not previously considered by a court or tribunal, ask yourself whether on balance a court or tribunal would most likely agree with your position?
- Uncertain positions: Be able to explain why you believe a court or tribunal would consider your position is the correct legal position, considering the alternatives. You do not need to agree with HMRC’s position or guidance.
- Finely Balanced Positions: If the law is finely balanced, HMRC accepts you may proceed with the interpretation you believe is most likely correct.
- Professional Advice: Consider whether you should seek advice from a suitably qualified adviser, especially for complex or high-value matters. HMRC clearly expects large, well-resourced organizations to do so, though it is not mandatory.
Certainty on the Facts
- Proportionality: Take all prudent and reasonable steps to gather all relevant information and identify all relevant facts. However, you do not need to gather evidence to a litigation standard or seek legal advice unless it is necessary for you to be satisfied your return is correct.
- Verify accuracy: HMRC expects you to verify the accuracy of facts relied on (e.g. contract terms, business activities, valuations). You should be prepared to test the data and challenge assumptions. Consider whether you should seek advice from a suitably qualified adviser, especially for complex or high-value matters. HMRC clearly expects large, well-resourced organizations to do so, though it is not mandatory.
Practical Steps: Checklist for Tax Return Declarations
Before making a return declaration, ask yourself:
- Have I identified and checked all relevant facts?
- Have I reviewed contracts, agreements, and business activities as needed?
- Have I considered all relevant legal sources and statutory tests?
- If uncertain, have I consulted a competent adviser?
- Do I genuinely believe my interpretation is most likely correct?
- Am I satisfied that my return is correct and complete to the best of my knowledge?
Practical Implications
- Take care with your tax return declaration, especially when the law is unclear or your position is novel.
- HMRC expects that the position adopted is more probable than not; a merely arguable position is not sufficient.
- That does not prevent taxpayers from testing such positions but care is required in whether and how the position is adopted and the extent of any disclosure required to HMRC.
- Be prepared to justify any assumptions made due to incomplete or imperfect data.
- Taxpayers within the SAO regime should consider GfC13 guidance when assessing “appropriate tax accounting arrangements” and governance frameworks.
- The guidance doesn’t assist taxpayers who may know, or suspect, they are affected by a caselaw or policy development but do not have the information or resources available to ascertain the accurate position before return submission. For further see here.
If you’re considering the impact of novel or uncertain positions on your tax return declaration, or need expert guidance on assessing uncertain positions, our specialist team is here to help.