I wrote last year about a proposal that all large businesses be required to notify HMRC in advance if they are taking a tax position that they believe HMRC may not agree with.

There was a lot that did not feel right in that proposal: it was too subjective (implying that taxpayers should try to anticipate what HMRC might think about particular arrangements); it penalised individuals and not just corporate taxpayers; and the administrative arrangements for making disclosures did not fit with existing tax compliance frameworks.

HMRC has accepted these criticisms and published a new consultation document with a revised version of the proposal.

In the revised version, a set of "triggers" is proposed to identify reportable arrangements, which in some respects is a bit like the idea of "hallmarks" used in other disclosure regimes (e.g. DOTAS and DAC6).

The new triggers include adopting an interpretation of tax law that differs from HMRC's known position, or departs from established industry practice, or conflicts with the position taken in a previous tax return.

Reportable uncertainty may also arise from novel situations (where there is no consensus on the applicable tax treatment) or where there is a difference between the tax outcome and the underlying economics.  

Finally, and perhaps most controversially, a tax position may be reportable if it is based on advice which contradicts other available advice, or it is adopted despite the availability of advice indicating an alternative tax treatment. 

This last category looks like a recipe for unintended consequences: one reading of the proposal is that it acts as a disincentive for taxpayers to seek professional advice in relation to their tax affairs.

The original proposal was criticised as a solution in search of a problem: HMRC's real-time monitoring of large businesses through customer compliance managers and the business risk review process means that tax uncertainty is already routinely brought to HMRC's attention by large businesses before they submit their tax returns. 

The revised proposal is a clear improvement on the original, but the link between lost tax revenue and the need for new notification rules for large business remains a puzzle. 

The consultation states that the measure addresses the "legal interpretation tax gap", which HMRC says cost £4.9bn in lost tax revenue for the 2019-20 tax year. The projected increase in annual revenue from the new disclosure regime is (at its peak) £45m in the 2023-24 tax year. In other words, the consultation predicts that the measure will solve less than 1% of the problem at which it is directed.