Proposals to extend uncertain tax treatment notification requirements

The objective of the proposed changes is to increase the effectiveness of the UTT regime which is aimed at reducing the legal interpretation portion of the tax gap by requiring taxpayers to provide HMRC with timely and accurate information concerning a tax treatment that is uncertain.

These changes, if implemented, are likely to increase the compliance burden for taxpayers within scope. Taxpayers can mitigate the impact by proactively engaging with HMRC early on areas of uncertainty to take advantage of the general exemption from notification, albeit these proposals include that explicit confirmation from HMRC will be required that they are aware of the UTT.

Under the current rules, an uncertain treatment is defined by reference to two triggers and notification is required where: (i) one or both of these triggers is met; (ii) the ‘tax advantage’ obtained in adopting the treatment exceeds a £5 million de minimis threshold; and (iii) an exemption does not apply.

The current triggers for when a tax treatment is notifiable are:

• If a provision has been recognised in the accounts of the company, or a member of the partnership, to reflect the probability that a different tax treatment will be applied to a transaction to which the amount relates (this includes where provisions are recognised in a later set of accounts); or
  
• 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.

In order to encourage early engagement with HMRC, there is an exemption from notification in cases where it is reasonable for the taxpayer to conclude that HMRC already have all, or substantially all, of the information in relation to an uncertain tax treatment that would have been included in the notification. For corporation tax, there is also an exemption to notify in cases where the uncertain tax amount relates to UK-UK transactions between members of the same corporate group and the net effect is that any overall ‘tax advantage’ obtained by the group is £5 million or less.

Under the current UTT regime, taxpayers are required to notify HMRC of any arrangements that meet the UTT criteria by submitting a notification aligned to the relevant tax return. This means the timing of the notification depends on which tax (or taxes) the underlying arrangement relates to - for example, notifications connected to income tax or corporation tax are submitted alongside the relevant annual return. Penalties apply for non-compliance.

HMRC’s proposals are as follows:

Expansion to individuals and trusts

The consultation proposes imposing the UTT notification requirements on all individuals and all trusts so this would include, for example, employee benefit trusts (EBTs).

There will be no qualification criteria as there is for businesses and partnerships which are based on turnover (£200 million) or balance sheet (£2 billion) totals. HMRC’s expectation is that the £5 million de minimis that applies will mean that notification will only be required for individuals and trusts meeting this threshold.

Where a trust is a partner in a partnership or owns shares in a company, only legal interpretations made by the trust will be considered within scope of UTT. A partner will not have to notify of legal interpretation uncertainties that satisfy the criteria, made by the partnership, nor will a shareholder in a company have to notify of legal uncertainties made by the company. However, we would expect, for example, that the sponsoring company of an EBT may potentially have an interest in the legal interpretations being made by the EBT.

Similarly, where an individual is a partner in a partnership, only legal interpretations made by the partner will be considered within scope of UTT. An individual partner will not have to notify of legal interpretation uncertainties that satisfy the criteria, made by the partnership.

Expanded definition of UTT

HMRC have long been considering adding a third trigger in order to capture legal interpretation uncertainties not covered by the existing triggers because HMRC do not have a known view and no provision has been made in the accounts. The consultation states that the types of scenarios the third trigger is intended to cover may include a tax treatment concerning a new product or novel process.

Before the regime was first introduced a proposed third trigger was to notify in cases where there was a substantial possibility a court or tribunal would find the treatment to be materially incorrect. However, this was considered too subjective and was ultimately never implemented. HMRC are now proposing that a third trigger apply where there is more than one credible legal interpretation and HMRC’s view is not known. The proposed trigger will link in with the Guidelines for Compliance GfC13, published in September 2025, that help taxpayers to file returns with HMRC that are correct and complete. HMRC are also inviting views on additional triggers that would identify uncertain tax treatments that would not be identified by the current triggers or the proposed third trigger.

In their consultation document, HMRC acknowledge that transfer pricing inherently involves a degree of judgement, so it is proposed that transfer pricing uncertainties be specifically excluded from this proposed trigger although the existing two triggers would continue to apply to them. HMRC are also interested in views on other areas which could be excluded from the third trigger.

Bringing additional taxes into scope

The additional taxes under consideration are:

• Stamp Duty Land Tax (land transaction taxes are devolved to Scotland and Wales, therefore, the UTT notification requirement would apply only to transactions involving property in England and Northern Ireland);
• All classes of National Insurance contributions (NICs);
• Withholding deductions under the Construction Industry Scheme;
• Inheritance Tax; and
• Capital Gains Tax.

NICs are currently included within the scope of UTT, but only for calculating the £5 million tax advantage threshold. There is currently no requirement to notify uncertainties solely involving NICs. Although it is proposed that all classes of NIC will be brought within the scope of legal interpretation uncertainties, HMRC expect that in practice the £5 million threshold will usually only be exceeded for Class 1 NIC.

Changes to notification deadline

To mitigate against an increased administrative burden of making notifications in respect of additional taxes with different notification deadlines, HMRC are proposing to introduce a new single annual date by which all UTT notifications must be submitted, regardless of the tax (or taxes) to which the arrangement relates. This single date would apply for the purposes of UTT only.

Exemption from notification

HMRC are also proposing to tighten the general exemption from notifying uncertainties that they have already made HMRC aware of. Under the proposals the taxpayer would be required to hold confirmation from HMRC acknowledging that the uncertainty has been brought to their attention.

The consultation is open until 4 June 2026. The Government is aiming to publish its response in summer 2026. The intention is that any legislation will be introduced in the next available Finance Bill and will apply to returns filed after 1 April the following tax year.

If you would like to discuss the possible impact of the proposed changes or have comments you would like to be considered for inclusion in KPMG’s response to the consultation, please speak to your usual KPMG contact. Affected taxpayers should also consider submitting their own response to HMRC. HMRC are particularly interested in feedback on the practical impact of these proposed changes.

For further information please contact:

• Karmjit Mader
• Kevin Elliott