This consultation is part of the Government’s wider measures to provide a more stable and predictable (corporate) tax environment for taxpayers, and promote the UK as an attractive investment destination.
In last year's Autumn Budget, the Government's corporate tax roadmap confirmed that the rate of corporation tax would not increase for the duration of Parliament. It also confirmed a number of tax incentives would remain, including full expensing and R&D tax relief rates.
Alongside the R&D tax relief advance clearance consultation also published last week, this consultation forms another piece of the puzzle for taxpayers, aiming to provide them with certainty over how the tax rules will apply to investment decisions.
What’s being proposed?
The consultation proposes a dedicated service to give businesses statutory certainty of how tax rules will apply to a project, providing it proceeds as planned.
The service is aimed at the largest and most innovative investment projects with the highest spend, although smaller projects of national or strategic importance might also be considered.
The consultation document sets out how a new process could support investment decisions in the UK, including:
- the type of projects, entities and taxes intended to be included in the new process
- how the proposal could interact with existing routes to certainty on tax administration
- how the process of obtaining certainty would work, including timelines and whether the Government may look to charge a fee for this service.
The proposal goes beyond the existing routes to tax certainty. Unlike the current non-statutory clearance process, this new process would not require the demonstration of genuine uncertainty.
Corporation tax will be the core tax for investors to seek advance certainty, but the consultation notes the Government is open to exploring expansion into areas such as VAT, stamps taxes and employer duties.
This will be a tailored service to obtain tax certainty on material aspects of major projects. It will not exhaustively provide certainty on every tax implication, but allow a flexible and open discussion to agree the areas where tax certainty would be of most value and could be provided to the timelines the project is working to.
The advanced certainty clearance would be a binding decision as to HMRC’s application of the law based on the facts on a specific tax matter where this is fully disclosed and not misrepresented. As such, HMRC would not seek to change its reading of the law as it applies to the issues and fact patterns on which clearance is given, except in specific circumstances such as if key assumptions were no longer met due to changes in the project, or where changes in the law render the clearance obsolete.
When undertaking a major project, one of the key areas of uncertainty for investors and developers is the level of tax due over the project's lifetime. While the Government have committed to capping the current corporation tax rate until the end of this Parliament (2029), major projects starting in 2026 are likely to span well beyond this. By this time, the cap may not exist.
A five-year maximum clearance has also been proposed. It's expected that businesses can apply for clearance renewal if the project extends beyond this threshold, as long as the facts and key assumptions don't change in a way that impacts the clearance conclusions. But major projects can take considerably more than five years to plan, finance, and deliver, and could require multiple renewals – so this will be an important area to consider to deliver lasting certainty.
Who would be eligible for the new process?
While the threshold for eligibility forms part of the consultation, the Government envisages that project spend will be in the hundreds of millions to be eligible. Reflecting on HMRC resource constraints, the consultation envisages that the threshold would be set so dozens, rather than hundreds of projects would be serviced each year.
For most businesses, HMRC’s current offers to help taxpayers gain tax certainty will be the only port of call – from Advance Pricing Agreements (APAs) and Statutory and Non-Statutory clearances, to Customer Compliance Managers. But, with the consultation also seeking views on the potential benefits and disadvantages of publishing summarised, anonymised clearances, and an update on Cost Contribution Arrangements (see below), this could have wider applicability beyond just those taxpayers undertaking major projects.
The Government is initially proposing that only entities subject to corporation tax will be eligible for the new service. There isn't expected to be a requirement to have an existing UK presence at the time of application, but they must intend to have one when their investment project formally starts.
This narrow scope could prevent major investors, such as Sovereign Wealth Funds, pensions, and partnerships, from gaining advance certainty. The Government is inviting views on this, and investors who may not fall within this proposed scope may want to consider sharing their feedback as part of the consultation.
This eligibility threshold may be based on authorised spending for large projects that invest in fixed and intangible assets. Views are being requested on which intangible assets should be considered for the threshold.
Additionally, the Government seeks input on how the threshold could apply to phased projects, and how to objectively define boundaries when considering projects of national or strategic importance, or those with significant impact in their industry. The Government is also considering measures to prevent the grouping of individual projects to meet the threshold for this new process.
Transfer pricing of Cost Contribution Arrangements (CCAs)
In the corporation tax roadmap, the Government committed to review the transfer pricing treatment of CCAs. These are contractual agreements between group companies to share the costs and benefits of developing assets, such as intellectual property. HMRC is interested in CCAs (known as 'cost sharing arrangements' in the US) due to the large number of open HMRC enquiries they feature in, which tend to focus on the validity of the arrangements and the underlying valuation.
HMRC want to find a solution that will reduce taxpayer uncertainty around entering into and implanting CCAs. This consultation confirms that the Government intends to offer clearance on the treatment of CCAs through APAs using existing legislation. An updated Statement of Practice will detail the necessary conditions.
In addition to providing advance certainty on tax treatment in future periods, APAs can apply to periods where returns have already been filed. This would be particularly helpful to US-based taxpayers who are struggling with the clash between the Organisation for Economic Co-operation and Development (OECD) and Internal Revenue Service (IRS) regulations, in regard to the requirement that participants in a CCA have to exercise control, which is a difficult condition to meet and demonstrate.
Next steps
With ambitions for the new process to be in place by 2026, this consultation could be a welcome development against the backdrop of an uncertain UK fiscal position and shifting global macroeconomic climate.
The consultation document is open for comment until 17 June 2025. For more insight and guidance in this area, get in touch with Abby Agopian.
