HM REVENUE & CUSTOMS (HMRC) HAS EXTENDED the scope of its non-statutory clearance service for business customers with effect from 1 April 2008. It is now possible for a business to apply for a nonstatutory clearance, regardless of the age of the legislation concerned, in circumstances where there is material uncertainty as to the tax treatment of specific issues of commercial significance to the business. Previously, under Code of Practice (COP) 10, it was only possible to apply for clearance in respect of uncertainty over new legislation introduced in the four most recent Finance Acts.
This new extended system has been introduced by HMRC as a result of its consultation with large businesses and is an attempt to give business taxpayers greater certainty as to their tax affairs.
A non-statutory clearance is written confirmation of HMRC’s view of the application of tax law to a specific transaction or event. It can be relied on by the taxpayer, in most circumstances, as HMRC’s view of the tax consequences of the transaction or event in question.
A non-statutory clearance can be obtained either pre-transaction (where the taxpayer can demonstrate that the transaction is genuinely contemplated) or post-transaction.
GUIDANCE
HMRC issued a business brief (20/08) on 1 April 2008 announcing the change. A pilot scheme had already been operating for certain business taxpayers from 2 January 2008. Revised guidance is available on the HMRC website at hmrc.gov.uk/cap/links-dec07.htm.
The clearance application must relate either to:
- material uncertainty relating to new legislation introduced in the past four Finance Acts; or
- legislation older than the past four Finance Acts where there is material uncertainty over the tax treatment of a specific issue that is of commercial significance to the business itself.
In judging whether or not the ‘commercial significance’ criterion is satisfied, regard is had to the scale of the business and the impact of the issue on it.
This clearance procedure relates to business taxes only. Clearance in respect of personal tax issues must still be applied for under the COP10 procedure.
MAKING AN APPLICATION
Clearance applications should be sent to a taxpayer’s client relationship manager (CRM) if the tax payer is a Large Business Service customer or otherwise to HMRC Clearances Team, Alexander House, 21 Victoria Avenue, Southend-on-Sea, Essex, SS99 1BD. However, HMRC prefers the clearance application to be made by e-mail to: hmrc.southendteam@hmrc.gsi.gov.uk.
For the clearance to be binding on HMRC the full facts and context must be explained in the application and the legislative uncertainty must be set out. HMRC will respect the confidentiality of commercially sensitive information. If a taxpayer is concerned over sensitivity, HMRC recommends that the taxpayer notifies it in advance so that an appropriate method of submitting the information can be agreed.
The required information relates to: the applicant, the transaction(s), the commercial background and the legal points. The requirements are all set out in great detail on the HMRC website.
HMRC’S RESPONSE
HMRC will usually reply within 28 days. The reply will accept the taxpayer’s interpretation of the legislation, reject it or ask for more information. Where it is rejected, HMRC will give reasons for the rejection. The taxpayer can then either act on HMRC’s view or act on its own interpretation and self-assess accordingly.
NON-ACCEPTANCE OF THE CLEARANCE APPLICATION
HMRC will not accept non-statutory clearance applications in certain circumstances. In particular, the clearance procedure is not intended to enable a taxpayer to get tax-planning advice from HMRC or to obtain approval of tax-planning arrangements. HMRC will also reject an application if it takes the view that the arrangements are primarily to gain a tax advantage, rather than commercially motivated. If the application relates to an area where there is no uncertainty, HMRC will refer the taxpayer to published guidance, if any. A clearance application will not be accepted where an audit or enquiry into the transaction has been opened or where the time limit has passed for an audit or enquiry to be opened in respect of it.
Asset valuations and transfer-pricing enquiries are not covered by this clearance procedure. Research and development (R&D) enquiries should not be made this way either. Instead, such enquiries should be made to the taxpayer’s CRM or the relevant R&D specialist unit.
APPEALS AGAINST CLEARANCES
There is no general right of appeal against clearances except where there are specific statutory rights of appeal. For example, there is a right to appeal to an independent tribunal under s83 of the Value Added Tax Act 1994 about the VAT chargeable on a specific supply of goods or services. This appeal can only be made when the supply has taken place.
RELIANCE ON CLEARANCE
A clearance is specific to the applicant and to the particular transaction that is the subject of the clearance application. A clearance is not binding on HMRC if the taxpayer attempts to apply it to another, albeit similar transaction. The circumstances in which a taxpayer can rely on a clearance obtained under the new extended clearance system are the same as under the existing COP10 procedure.
Essentially, provided that full disclosure of the facts and circumstances is made; the transaction does not change materially from that described in the application; there is no court or tribunal judgment that changes the prevailing interpretation of the relevant law; and there is no change in relevant law, the clearance will be binding on HMRC.
By Charlotte Sallabank, partner, Jones Day. E-mail: csallabank@jonesday.com.