It is perhaps a reflection of the complexity of tax legislation and the uncertainty often caused by its ambiguity that HMRC offers various clearance facilities for ‘customers’ and their advisers:
- Statutory clearances, which the tax legislation requires HMRC to provide (e.g. for transactions in securities, under ITA 2007, s 701);
- A non-statutory clearance service for businesses;
- A non-statutory clearance service for non-business customers, under COP10 (‘Information and advice’) (http://www.hmrc.gov.uk/pdfs/cop10.htm);
- A non-statutory inheritance tax clearance service for business owners, in respect of business property relief (http://www.hmrc.gov.uk/cap/clearanceiht.htm); and
- VAT rulings for non-business customers under Notice 700/6, which can be downloaded from HMRC’s website.
Statutory clearances are relatively common, but are restricted in their scope (for a list of these clearances, see: http://www.hmrc.gov.uk/cap/statutory-clearances.pdf). However, non-statutory business clearances are seemingly less well known, and therefore appear to be used relatively infrequently. This may be because the service is still fairly new. It was piloted by HMRC in January 2008, before being introduced permanently from 1 April 2008. There is fairly detailed guidance on the non-statutory business clearance facility at HMRC’s website.
An entire HMRC manual (the ‘Non-Statutory Business Clearance Guidance’ (NBCG)) is devoted to the facility. Whilst much of HMRC’s internal manual replicates external guidance on the website, it does provide an interesting insight into how HMRC handles non-statutory business clearance applications.
HMRC will provide non-statutory business clearances both pre and post-transaction. ‘Businesses’ in this context includes property businesses (NBCG2200). The following points are worth noting:
- There must be evidence that the transaction is genuinely contemplated (e.g. by providing a proposed transaction date, supported by any available documentation, such as draft contracts).
- There must be ‘demonstrable’ material uncertainty about the tax consequences of a transaction affecting the business. HMRC expects that applicants will have reviewed the legislation and any published guidance before making the application.
- HMRC will refuse to accept clearance applications involving tax or National Insurance planning arrangements, and full disclosure is required. Full disclosure includes pointing out if a separate disclosure has been made under the disclosure of tax avoidance schemes (DOTAS) rules covering all or part of transactions.
HMRC provides a useful checklist (http://www.hmrc.gov.uk/cap/annex-a-checklist.pdf), which specifies the type of information that should be supplied, although supplementary information and explanations should also be considered, where appropriate. HMRC encourages non-statutory business clearance applications to be submitted by email (email@example.com) as this enables the application to be processed more quickly, but also acknowledges the security risk involved in email communications (NBCG4400).
The NBCG manual warns HMRC officers to watch out for “tell-tale signs of tax avoidance” with a view to rejecting the clearance application, if appropriate. However, applications cannot be rejected on the grounds of suspected avoidance without reference to HMRC’s Anti-Avoidance Group (NBCG5474). HMRC’s NBCG manual also includes sections on ‘avoidance indicators’, but unfortunately these sections are of no help outside HMRC, as virtually all the text has been withheld under the Freedom of Information Act 2000.
The HMRC guidance rather worryingly indicates that even if a clearance request falls within the strict legislative criteria, it may be inconsistent with the underlying policy behind the legislation. If this inconsistency results in a tax advantage, HMRC will decline to respond (NBCG5640). There is generally no right of appeal against HMRC’s view on a clearance, except in limited circumstances (e.g. appealable matters under VATA 1994, s 83(1)). However, if the HMRC caseworker has made a mistake (e.g. by failing to take a material fact into account) it may be possible for the practitioner to apply for the clearance application to be re-examined, or otherwise to contact HMRC’s complaints manager (NBCG7100).
A helpful service?
One of the problems with the non-statutory business clearance service (and clearance applications to HMRC in general) is that if HMRC come up with the ‘wrong’ answer, you may be stuck with it because as mentioned there is no formal right of appeal. However, my experience of the non-statutory business clearance service has been that it is useful in providing some comfort in cases of doubt, and it is certainly an option to consider in appropriate circumstances.
The above article is reproduced from ‘Practice Update’ (September/October 2010), a tax Newsletter produced by Mark McLaughlin Associates Ltd. To download current and past editions of Practice Update, see the Newsletters section.