Uncertain Tax Treatment: The future of taxpayer engagement with tax authorities

April 2022

On 1 April, 2022, the new notification of Uncertain Tax Treatment (“UTT”) regime became live.  

The regime has been designed to reduce the £5.8bn “legal interpretation” tax gap by helping HMRC to identify more legal interpretation issues at an earlier stage. HMRC define the “legal interpretation” tax gap as where a business and HMRC interpret the law or its application differently, which then results in a different tax outcome. This can reflect genuine difference of opinion, and HMRC accepts that so-called abuse or tax avoidance is not necessarily involved.

Businesses with UK turnover exceeding £200m and/or a £2bn UK balance sheet are within scope and corporation tax, VAT and PAYE (including NICs) are the covered taxes. Businesses in scope should review the potential impact of the regime, including on their HMRC relationship, and take any action that the review might necessitate. The Uncertain Tax Treatment flyer gives more details of the rules and some suggested approaches that taxpayers can take.

The UTT legislation and manual also have a wider interest, beyond those immediately affected by the rules.  Early engagement and transparency by taxpayers are key elements of the rules and they signpost a future where the onus will increasingly be on the taxpayer to disclose issues (for those who don’t do so today) and the nature of what “good” disclosures will look like will change significantly. Critically, the UTT rules require a taxpayer to describe to HMRC possible alternative tax treatments to the one the taxpayer has taken - in other words, giving HMRC their possible arguments against you.

Engagement with Tax Authorities - How are things changing? How to be ready?

Budget pressures and the opportunities afforded by technology were always going to move us away from the established system where the burden has been on HMRC inspectors to find and enquire into relevant issues. The dial has been moving towards businesses informing HMRC of areas of risk either through HMRC’s analysis of data provided by taxpayers or through direct disclosure. The transparency agenda (such as the CbCR initiative) gives tax authorities access to increasing amounts of data and, domestically, HMRC has introduced regimes such as DOTAS and otherwise encouraged early disclosure through cooperative compliance practices.  The increased information flow has facilitated HMRC’s strategy of allocating resource to risk and enabled the targeting of issues and taxpayers, including recently through nudge letters on profit diversion.

The additional fiscal stresses created by COVID, for example the UK’s need for tax receipts and HMRC resource pressures, will further incentivise HMRC to take more steps along this road.  The UTT regime is one of these steps, with taxpayers now having to disclose high value areas of uncertainty reflected in provisions in their accounts and/or positions that rely on an interpretation or application of the law that differs from HMRC’s known position.  Given the aim of these rules is to reduce the legal interpretation tax gap, we should expect increased levels of HMRC investigation in areas of uncertainty disclosed through these rules.    

The challenge for businesses in an environment of self disclosure and pressure on tax receipts is to ensure that tax positions taken are robust and appropriately presented and defended.  

Ensuring your business is well prepared for these challenges involves the following aspects:


A review of tax risk appetite and strategy. Are existing strategies still fit for purpose? For example:

  • Is the business willing to take positions that are contrary to HMRC’s known position going forward?
  • Given publicly available information, is a business prepared to respond to challenges that might be raised by external interested parties?

Tax authority engagement

Establish a strategy for engaging with tax authorities, bearing in mind that changes to disclosure requirements might take place at short notice and apply to existing ongoing transactions. If engaging in “real time” with tax authorities, a business will need to be ready at this early stage not just to present its technical case (together with evidence for its position), but also for UTTs to give HMRC details on possible alternative interpretations.


Consider how evidence to be used to support tax positions is captured and retained, bearing in mind that technology can now aid and simplify these tasks. Knowing the content of evidence prior to it being required to be disclosed will help a taxpayer form robust arguments, including ones that can be defended through litigation if required.

Embed governance

Review provision processes and controls, enhancing if necessary to identify areas of uncertainty and risk, and ensuring that appropriate personnel are involved with related decisions.


Employ technology to respond to the significant investments being made by revenue authorities in this area. A business will want to proactively interrogate its information (publicly available information and data to be submitted to authorities) to understand what conclusions might be drawn by authorities from that information.

Cooperative compliance: What does “good” look like going forward?

HMRC’s UTT manuals set out how a taxpayer should interact with HMRC on UTTs.  Whilst being specific to the UTT rules, it is likely that the levels of transparency described in the new manual, will become normal requirements for a taxpayer seeking a “good” relationship.

There are two key elements of “good” in this context:

  1. Firstly, disclosures should be made early on areas of uncertainty (ideally before a tax return is submitted). HMRC are making it very clear (most recently in their guidance update on 1 April) that they want taxpayers to rely on the general exemption and not wait to make a notification. 
  2. Second, to be “transparent”, a taxpayer must describe areas of uncertainty and the alternatives to that tax treatment chosen by the taxpayer (see the list of matters that should be notified or discussed during a real time discussion for a UTT set out at UTT15100).  In other words, a taxpayer will need to inform HMRC of the possible arguments that HMRC might wish to make against them, rather than wait for HMRC to raise questions in the course of an enquiry. 

A combination of the above 2 points will place great importance on first interactions with HMRC on areas of uncertainty.  Taxpayers should be looking to prepare a thorough and robust analysis (backed up by the evidence and data) that can be presented at these real time conversations with HMRC, not just of their chosen position, but the possible alternative treatments also. 

Doing this will put the taxpayer in the best possible position to achieve early resolution of the issue and will give a taxpayer confidence that it will be able to make a successful case in formal processes (including litigation) if that becomes necessary. 

For taxpayers and HMRC alike, resolving uncertainties early is the key benefit from investing in a good relationship. It is encouraging that HMRC intends to allocate resources to taxpayers (including those without a CCM) who seek to obtain the benefit of the general exemption from notifying a UTT through real time engagement with the aim of achieving an early resolution of their uncertain positions. The temporary CCM trials for smaller companies to help unblock longstanding issues is a further welcome initiative.

However whilst the carrot of early resolution is attractive, it is important to keep in mind that HMRC are seeking to reduce the legal interpretation tax gap. Real time and transparent relationships with HMRC continue to be desirable, but decisions around what and how to disclose issues to HMRC will be more nuanced going forward. 

How PwC can help

  1. Strategy including on HMRC engagement - developing the right strategy tax and for interacting with HMRC on areas of uncertainty and understanding how that should fit in with other interactions with HMRC.
  2. Overall approach to UTT - review current provisioning process and enhance processes and controls to identify all potential UTTs (across the three taxes in scope), ensure robust and evidenced provision conclusions, and document key UTT decisions and HMRC interactions.
  3. Specific UTT issue support - deciding whether a particular issue is a UTT, how and when to approach HMRC, supporting the making of an impactful early approach or formal UTT notification.
  4. Future Transactions - providing tax advice (under legal privilege, if required) that will take into account the UTT regime.


Contact us

Laura Hinton

Laura Hinton

Managing Partner, PwC United Kingdom

Stuart Higgins

Stuart Higgins

Tax Markets and Services Leader, PwC United Kingdom

Tel: +44 (0)7725 828833

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