Clearance service for businesses - how to get certainty on significant business tax issues

This guidance is for the use of the business customers. The current service for non-business customers continues. Non-business customers should continue to refer to the existing guidance at Code of Practice 10 or VAT Notice 700-6. (Please note that as a result of the extension of clearances for business customers COP10 and VAT Notice 700/6 are being revised. Further announcements will be available on the ‘What’s new’ section of the Internet in due course.)

Business owners who would like make clearance applications in relation to Inheritance Tax business property relief (IHT-BPR) from 1 May 2008 to 31 October 2008 should see the separate guidance Inheritance Tax clearance service for business.

Contents

Clearances: Mission Statement

In developing the new Clearances Service we wanted to provide a facility that was as useful as possible for UK business as a whole. To do this within our resources, we have focused our efforts on where the benefit is greatest. There are a wide range of potential applications, from issues that are clearly new to those which are almost without doubt. HM Revenue and Customs (HMRC) wants therefore to work in partnership with businesses and their representatives to ensure that as far as possible those issues brought forward for clearance are the ones that have the greatest impact on the business concerned. Developing a common understanding on this will be an ongoing process between HMRC and the users of the service.

The purpose of the new Clearances Service is:

  • to provide certainty for businesses operating in the UK, as a useful practical service at a level whereby speed of response from HMRC can be reasonably assured.

We will therefore aim to provide clearances:

  • within 28 days as the norm
  • on areas of material uncertainty arising within four Finance Acts of the introduction of any new legislation
  • on legislation older than last four Finance Acts where there is material uncertainty around the tax outcome of a real issue of commercial significance to the business itself, determined by reference to the scale of the business and the impact of the issue upon it.

HMRC and users of the Clearances Service will:

  • recognise the need for proportionality from all sides so that applications are relevant, focused and within scope, thus avoiding overload of the service to the detriment of all concerned.

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Applications for clearances and statutory approvals

This guidance sets out what you need to do to make a clearance application, and what information you need to provide. It includes information for business customers across all of the taxes that was previously set out in VAT Notice 700/6 and Code of Practice 10.

Customers who would like advice on personal tax issues should continue to refer to Code of Practice 10. General guidance on other help and advice available from HMRC is set out at Annex B.

Non-statutory clearances

A non-statutory clearance is written confirmation of our view of the application of tax law to a specific transaction or event that you can rely on in most circumstances, as our view of the tax consequences of your transaction.
We will aim to send you our view within 28 calendar days, though in complex cases this may take longer. We will provide clearances across all business taxes, regardless of the age of the legislation, where you have demonstrated that:

  • there is material uncertainty
  • that the issue is commercially significant.

We will provide non-statutory clearances both

  • pre-transaction where evidence is supplied that the transaction is genuinely contemplated
  • post-transaction.

Clearances do not alter the tax treatment but simply give you HMRC's view of what the correct tax treatment is.

Statutory clearances

There are a few statutes where tax law provides that HMRC will give a clearance relating to a specific point. These are referred to as 'statutory clearances' and they are outside the scope of this guidance.

For contact details and a comprehensive list of statutory clearances, please see the contact list (PDF 79K). It is helpful if applications for non-statutory clearances are submitted separately to statutory clearances, to speed up the handling of your applications.

You may wish to write one clearance application letter to cover both non-statutory and statutory clearance applications, but you should ensure that copies are sent to all relevant teams. Where you choose to do this, please ensure it is clear at the front of your letter which teams copies of your letter have been sent to.

Statutory approvals

A statutory approval is different from a statutory clearance. Approval can be required in advance for a particular tax treatment to apply to a particular issue that can have wide reaching consequences, and the tax treatment changes according to whether an approval has been given or not. For example, statutory approval for the beneficial tax treatment of certain employee share schemes. For contact details on statutory approvals, please see the contact list (PDF 79K).

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When and where to apply for a non-statutory clearance

Customers who can use this service

Clearance applications will be accepted from businesses and their advisers where there is demonstrable material uncertainty about the tax consequences of transactions affecting their business. We do not intend that this encompasses applications which clearly fall within the area of personal taxation of individuals (such as inheritance tax or the residence status of an individual director) or routine product endorsements.

Please note that we are unable to provide clearances on employment contract matters (for example, changes in the balance between salary and benefits) or where the provision of a clearance would encroach on taxpayer confidentiality. In general we will not give clearances on draft legislation which has not been passed by Parliament.

The current service for non-business customers continues. These customers should refer to the existing guidance at Code of Practice 10 or VAT Notice 700-6.

Normally, for VAT clearances, it is the supplier who should ask for a clearance on a liability to tax of goods or services. However, the clearance should not vary in circumstances where the same question and facts are set out by the recipient of the supply. If the enquiry relates to tax recovery, then it is the recipient of the supply who should make the clearance application.

When you may choose to apply for a non-statutory clearance

We aim to make the guidance that accompanies our taxes legislation as clear as possible. If you feel that the guidance does not make clear how the legislation will apply in a particular situation you can make a non-statutory clearance application.

Please read our guidance on the legislation before applying for a non-statutory clearance, and then read through the checklist in Annex A. The checklist will help you consider all the information that could be relevant to your particular application and to arrange the information so that we can progress your application as quickly as possible. Please attach the checklist, completed as appropriate, with your application.

To discuss your tax affairs or get tax information, including a wide range of leaflets that explain different aspects of the tax system, please see the information contained in the Contact Us area of our website.

In addition to non-statutory clearances HMRC makes available a wide range of information and advice to our customers. These are set out at Annex B. You may also wish to speak to your adviser.

Where to send your non-statutory clearance

Applications should be sent to:

  • your Client Relationship Manager (CRM) if you are a Large Business Service customer
  • HMRC Clearances Team, Alexander House, 21 Victoria Avenue, Southend on Sea, Essex SS99 1BD

Email: HMRC Clearances Team

We will be able to process your application more efficiently if you send your clearance application by email. Attachments to emails should be no larger than 2 MB. Please don't send self-extracting zip files as our software will block them.

Using email

  • HMRC cannot guarantee the security of emails you send to us or we send to you over the internet. Any information you send us by email is at your own risk.
  • It is important that you have assessed the risks of using email to send information or to receive it from us.
  • If you would like us to reply by email, please tell us so and confirm that you understand and accept the risks involved in using email. We will not always be able to reply by email.
  • Information about market/price sensitive matters or well known individuals should not be sent by email. Courier or post should be used for such sensitive information.
  • If you have any doubt about the authenticity of an email you receive which claims to come from the clearances team, please call us to check.

Please attach the checklist in Annex A, completed as appropriate, along with the information and any supporting documents that explain your clearance application. If you do not email your application to us, please print the checklist as a cover page and send all the documents to your designated contact above.

We recognise that many clearance applications contain commercially sensitive information and we will handle all information included in clearance applications securely and in accordance with our legal obligations. Whether you send us information electronically or on paper we will keep it secure, and not disclose it to anyone unless they are authorised to see it.

For an application that you consider particularly sensitive you may wish to notify us in advance, so that we can agree about how best to submit your application to us. If your tax affairs are dealt with by the Large Business Service please call your Client Relationship Manager. In other cases, please telephone John Woodham on 01733 355208 for advice.

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Information you need to provide with your application

For a clearance to be binding on us you must provide us, at the time the clearance is sought, with the full facts and context of the transaction, and set out the legislative uncertainty in question. The courts have said that the customer must 'put all of their cards face upwards on the table' (See Note 1). You are responsible for ensuring the information is correct, accurate and complete.

The information that you provide will depend on the circumstances of the clearance application. You need to decide what information is relevant to your application. Please include a heading to your clearance application that includes the name and address of the business customer.

The checklist at Annex A and the guidance in this section will help you decide what to provide so that we have the relevant information we need to process your application quickly. The guidance sets out guidelines as to the information to provide. We do not expect that all the information we list will be available or relevant for every clearance application. It minimises the burden for you and for us if you provide summaries of the relevant information, rather than a large volume of supporting documents.

Please supplement this with more detailed explanations, drawing attention to the relevant paragraphs in any supporting documents you provide.

Information about the applicant

Please set out this information at the start of your clearance application.

We will need to understand who is carrying on the business, including:

  • the name of the person carrying on the business
  • if different, the name of the business
  • the relevant customer identification number in full, eg Unique Taxpayer Reference, VAT Registration Number or Pay As You Earn (PAYE) reference – of the involved parties
  • contact details
  • if you are an adviser acting on a client's behalf, your contact details, and statement on whose behalf you are acting. Normally we require the full authority for you to act from your client.

Information about the transaction(s)

It helps us to handle the application efficiently if you set out the nature of your clearance request at the start – for example, in the heading or first paragraph. Please follow this with:

  • details of when the transaction occurred and the parties involved, and any other details of the transaction, eg what was supplied, price, contract terms etc
  • the proposed date if the transaction has not yet happened, and supporting information, such as a draft contract where it is available, so that we have an understanding of the timeframes under which you are working and can verify that the transaction is genuinely contemplated
  • any details of the transaction that are contingent, for instance, on future events or the consent of other parties.

Please note that if the request relates to one specific part of a series of connected transactions we expect you to provide a summary of the series of transactions as part of the facts about your transaction.

Information about the commercial background

Please explain the context of the transaction and the reasons you are undertaking it, providing details of any connected transactions as appropriate. Please also:

  • explain the significance to the business of the tax result in achieving the desired outcome, including the consequences of any alternative legal interpretations you have considered
  • where you have considered different forms of the transaction explain why you chose the proposed form of transaction over alternatives that could achieve the same commercial result
  • where your uncertainty arises from the interpretation of legislation older than the last four Finance Acts, you should also provide details of the commercial significance to the business of the transaction which leads you to make the clearance application, except for transactions related to VAT and Excise.

Information about legal points

Please set out your view of the tax consequences of the particular transaction, with a summarised explanation of your reasoning, and the full details of the question and issue on which you want a response. Please:

  • summarise the specific legislation at issue, any case law considered and guidance consulted that are relevant to the point of doubt on which you have made your clearance application
  • demonstrate why you believe there is uncertainty about the way the legislation applies
  • explain different ways it might apply which you have considered, paying particular attention to those aspects of the transaction that are critical to the legal analysis
  • state any previous advice you have or, where you are an adviser, your client has, received from HMRC (or its predecessor departments) which is relevant to your clearance application, quoting any HMRC (or predecessor) references where known and explaining why this advice does not go far enough to resolve your uncertainty
  • consider disclosing any advice, or parts of it, you have received, for example from your professional advisers or tax counsel. You are not obliged to provide this but by doing so we may better understand your request for advice.

Note1: The quote originates from R v IRC (ex parte MFK Underwriting Agencies Ltd) [1989] STC 873.

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How and when we will respond

If your application for a clearance is accepted

We will acknowledge your application on receipt and send our full response within 28 calendar days as the norm. Our response will either:

  • accept your interpretation of the legislation
  • reject your interpretation of the legislation
  • request further information that we need before we can give you an answer

Where we reject your interpretation we will set out reasons for this. Once we have provided our response, you are entitled to act on the basis of our view, or on the basis of your own view of the appropriate tax treatment, and self assess accordingly.

Very occasionally we may not be able to send our full response within 28 calendar days. This may be, for example, because the application is very complex and requires advice from a number of specialists within HMRC. Where this is the case we will tell you, and work with you to provide a response as soon as we can.

Sometimes we may need to ask you to provide more information before we can send you a full reply. If we need to ask you for more information, we will suspend the handling time for your application until you are able to provide us with the information we have requested. We may wish to contact you by telephone for clarification, and it helps us if you can provide a regular contact point during the period of your application.

If your application for a clearance is not accepted

We will, as soon as possible after receipt of your application, either:

  • respond by referring you to the relevant guidance
  • return your request setting out clearly why we are not responding to it

Circumstances when we will not accept your clearance application

We will not accept your application:

  • where you ask us to give, or comment on, tax planning advice. In particular, we do not 'approve' tax planning arrangements
  • where you submit an application that is a minor variation of your previous one for the same client on the same transaction (minor variation does not include where you notify us of a change in the facts of the transaction that is the subject of an ongoing pre-transaction clearance application)
  • where we take the view that the arrangements are primarily to gain a tax advantage rather than primarily commercially motivated. We will consider each case on its own merits and in accordance with our published risk guidance
  • in response to applications where there is not, in fact, any uncertainty - where the point is covered by our published guidance we will instead refer you to the specific part of relevant publications and indicate its relevance to the issues raised in your clearance application
  • where we have already opened an audit or enquiry into the transaction that is the subject of your clearance application; or where an audit or enquiry into your Self Assessment return for the tax that the clearance application relates to has already been opened; or after the time limit has passed for one of our officers to notify you of his or her intention to open an audit or enquiry into the tax that the clearance application relates to
  • on issues that do not involve the interpretation of tax law or its application to particular circumstances, for instance asset valuations and transfer pricing
  • in relation to questions about the application of customs rules. Under EU Customs law, HMRC may only provide binding tariff and binding origin information. These are provided as statutory clearances. We may issue decisions about the application of customs rules but these will not be binding on HMRC
  • we are not able to give an HMRC view on whether a particular Research & Development (R&D) project qualifies for relief in relation to research and development tax incentives. The key relevant test in the 2004 Department of Innovation, Universities and Skills Guidelines is based on the opinion of a competent professional in the field of science or technology and the claimant is best placed to apply this test. However, in line with our published Practice Note (PDF 30K), we do offer support and advice to companies intending to claim R&D tax credits. In advance of starting an R&D project, companies are welcome to approach either their CRM (if their tax affairs are dealt with by the Large Business Service), or the relevant R&D Specialist Unit , with details of how the company considers that the guidelines apply to its proposal, with a view to resolving any issues concerning the company's application of the guidelines at the outset - so that the company can proceed with confidence about how HMRC will handle the company's claim in respect of the project.
  • in relation to the tax consequences of executing trust deeds or settlements, and whether Chapter 5 Part 5 Income Tax (Trading and Other Income) Act (ITTOIA) applies.

Where you are not happy about the way we handled your application

We aim to send clear responses to the questions raised in your clearance application. We recognise that sometimes you may not agree with the response you receive from us, or you may not be happy with the service we have provided.

Our factsheet Complaints and putting things right (PDF 264K) sets out what to do if you want to complain about the service we have provided.

Interest and penalties where you asked us for a clearance

If you have applied for a non-statutory clearance, but have not received it by the time that your return is due to be submitted, then your return must still be sent in before the time limit. If that happens you should complete your return according to your own view of the correct tax treatment of the particular transaction. If you have filed a Self Assessment (SA) return you can amend it after we have given the clearance, if you wish, subject to the normal time limits.

The normal interest and penalty rules will apply if a return is incorrect, whether or not the transactions have been the subject of a clearance.
If you disagree with the clearance that we gave you and complete your return in accordance with your own view of the proper tax treatment, then it may turn out that you have not declared nor paid enough tax at the right time. Regardless of whether you had applied for a post transaction clearance or whether we had given a clearance by the due date, any unpaid or undeclared tax carries interest in the normal way. Similarly, any overpaid tax carries repayment interest from the date it was paid wherever this is usually the case.

Appeals against clearances

There is no general right of appeal against advice or clearances except where rights to appeal are set out in statute. An example is the right to appeal to an independent Tribunal under Section 83 of the VAT Act 1994 on a decision made by HMRC about the amount of VAT chargeable on a specific supply of goods or services. An appeal to the VAT and Duties Tribunal under this section can only be exercised once the supply has taken place.

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When you can rely on a clearance

General principles

A clearance applies:

  • to the applicant (even where the application has been made by the applicant's adviser, the adviser cannot apply that clearance to other similar cases)
  • to the particular transaction that was the subject of the clearance application

We aim to provide clearances that will give certainty to business as to the tax consequences of their transactions. Our starting point is therefore that you should be able to rely on any clearance we provide. However for a clearance to be considered binding on HMRC, you must set out all the relevant facts and draw attention to all the issues in your application. We expect businesses to interpret this relatively broadly, for example, by providing information on related transactions where relevant.

Under our existing powers of 'collection and management' (See Note 2), the principles of administrative law apply and the Courts will ultimately determine if we are bound by a clearance we have given. The underlying principle is that HMRC has a duty to collect the correct amount of tax as required by statute. In the vast majority of cases a clearance we give will be correct in law and therefore binding on HMRC. However there are some circumstances in which our primary duty to collect tax according to the statute may mean that we can no longer be bound by a clearance we have given. For example this may occur where:

  • for a pre-transaction clearance, the nature of the transaction changes in a way that has a material impact on the transaction as a whole
  • you provided incorrect or incomplete information when you made the clearance application
  • a Court or Tribunal judgment changes the prevailing interpretation of the law on which the clearance was based and your liability to tax for that year has not been finalised, for example, where you have not yet submitted your return or if you have submitted your return, where the opportunity to amend that return remains. A clearance will be based on the prevailing understanding of the law at the time it is given. Where the courts change the prevailing interpretation of the law, subject to the principle of legitimate expectation, we are required to collect the correct amount of tax as required by the new interpretation of the law
  • the statutory law relevant to the transaction for which the clearance was given changes. If this change is retrospective we will not be bound by any pre- or post-transaction clearance we have previously given. This situation occurs very infrequently. If the new statute is enacted pre-transaction and is prospective, any previously given clearance relating to the transaction will not be considered to be binding. HMRC has a duty to collect the correct amount of tax as required by statute at the time the transaction takes place. It remains your responsibility to take account of changes in the law.

Note 2: Section 5 of the Commissioners for Revenue and Customs Act 2005

Where HMRC makes an incorrect statement

There may be a small number of cases where we provide a clearance that is incorrect in law. Where this happens, we will be bound by such advice provided that it is clear, unequivocal and explicit and you can demonstrate that:

  • you reasonably relied upon the advice
  • where appropriate you made full disclosure of all the relevant facts
  • the application of the statute would result in your financial detriment

Where this is the case, to apply the statute may be so unfair that it could amount to an abuse of power. But, where we have given an incorrect clearance, our primary duty will always remain to collect the correct amount of tax as required by the law and therefore there will be some circumstances when we would not be bound by the advice we have given.

Where we provide you with an erroneous clearance that is binding on us and subsequently notify you that it is incorrect, the established legal position (See note 3) is that you will only be required to start accounting for tax on the correct basis from the date of notification.

Note 3: See for example F & I Financial Services Ltd [2001] STC 939 and Al Fayed and others v Advocate General for Scotland [2002] STC 910.

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Annex A - checklist for non-statutory clearance applications

Please use this checklist (PDF 29K) when deciding which document to attach to your email application, or print and include as a cover sheet where you do not send it electronically.

Check that you have included information that is relevant and available for your clearance application and indicate with a tick, items that are included. It helps us if you follow the order set out below in your clearance application letter and follow the same order in grouping any supporting documents.

 

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Annex B - other help and advice available from HMRC

In addition to non-statutory clearances HMRC makes available a wide range of information and advice to our customers.

To discuss your tax affairs or get tax information, including a wide range of leaflets that explain different aspects of the tax system, please see the information contained in the Contact Us area of our website.

For general advice on VAT, Excise and Customs, please ring our National Advice Service (NAS) on Tel 0845 010 9000.

For general queries on IR35 intermediaries legislation, please contact Tel 0845 303 3535

For general advice on other matters, please ring the Client Relationship Manager (CRM) or Customer Manager (CM) that handles your tax affairs. If you do not have an established contact within HMRC, then please visit the Contact Us area for the number of an appropriate helpline. You will find it helpful if you prepare for the call by having to hand a clear explanation of your question and relevant details.

General advice on specialist technical areas of taxation

Please check the contact details provided.

Statutory approvals

Please check the contact details provided.

Statutory clearances

Please see a list of all our statutory clearances and contact details (PDF 79K).

Statements of Practice

Non routine publications that explain our interpretation of legislation and the way we apply the law in practice.

Extra-statutory concessions

Relaxations of the law that give a reduction in tax liability that you would not be entitled to under the strict letter of the law.

News releases

Published on the Government News Network to announce proposed changes in the law or in our practice, or any other changes or initiatives of interest to the public.

Public Notices

A range of publications in relation to VAT, Customs and Excise.

Revenue & Customs Briefs

Regular publications which include announcements advising of policy changes resulting from legislation, litigation or internal policy reviews.

Guidance manuals

The internal guidance manuals our staff use.