Proposals To Extend The “Uncertain Tax Treatment” Notification Regime To Individuals And Trusts

The uncertain tax treatment (UTT) regime, introduced in 2022 with the aim of reducing the legal interpretation portion of the “tax gap”, currently requires large businesses to notify HMRC if they take uncertain tax positions. 

At the 2025 Autumn Budget, the UK Government announced its intention to “publish a consultation in early 2026 on proposals to enhance the existing notification regime for uncertain tax treatments”. This consultation was published on 12 March 2026 and sets out proposals to expand the existing regime significantly, including bringing individuals and trusts within the scope of the rules.

The existing UTT regime

The UTT regime currently applies to companies and partnerships with a turnover exceeding £200 million or a balance sheet total exceeding £2bn. Such businesses must notify HMRC of legal interpretation uncertainties where there is a “tax advantage” (i.e. the tax difference between the interpretation the taxpayer has taken compared to HMRC’s interpretation) exceeding £5 million and where one or both of the following two conditions are met.

• The business has taken a position that is contrary to HMRC’s known position, as published in guidance or in direct dealings with HMRC.
• The business has made provision in its accounts to reflect the probability that a different tax treatment will be applied to a transaction to which the amount relates.

The regime currently applies to corporation tax, VAT and income tax.

Failure to comply with the UTT regime could result in the imposition of a penalty, starting at £5,000 but potentially rising to £50,000 for further failures to notify.

The consultation states that, as of 1 January 2026, more than 30 notifications have been made under the UTT regime, involving a potential tax at risk estimated at £1bn. Although HMRC accepts that some of this potential tax at risk would have been identified during normal compliance activity and that HMRC may in some cases agree with the business’ interpretation, a recent evaluation of the first three years of the regime concluded that it has “increased engagement and tax transparency” and is “contributing to reducing the legal interpretation portion of the tax gap”.

Proposals for expansion

The Government intends to broaden the UTT regime “to require more legal interpretation uncertainties to be notified to HMRC, thereby improving transparency and ensuring consistent and fair treatment to other taxpayers and taxes”. 

Application to additional taxpayers

The existing regime applies only to businesses; however, the consultation notes that the tax gap for wealthy individuals was estimated at £2.1bn in the 2023/24 tax year, with over half of this amount attributable to legal interpretation. It is also noted that trusts frequently make legal interpretations that would be considered uncertain. Accordingly, the consultation proposes to bring all individuals and trusts within scope of the UTT regime, where they make a legal interpretation that results in a tax advantage exceeding £5m and one of the conditions (or “triggers”) is met. The Government’s view is that the £5m tax advantage requirement will ensure that the measure is focused only on high value uncertain legal interpretations, so it is not proposed that the turnover and balance sheet limits that apply to businesses will apply to individuals and trusts.

Bringing further taxes into scope

The UTT regime currently applies only to corporation tax, VAT and income tax (national insurance contributions (NICs) are factored into the £5m tax advantage threshold but uncertainties involving NICs do not currently require notification). In light of the proposal to bring individuals and trusts within scope, the consultation notes that it would be logical to include all the taxes for which such taxpayers would be liable. Accordingly, it proposes extending the regime to include stamp duty land tax, national insurance contributions, construction industry scheme obligations, capital gains tax and inheritance tax. 

Introduction of an additional “trigger

The consultation takes the view that the two conditions (set out above) applying under the existing regime are “narrow” in nature, meaning that “some businesses are not required to make HMRC aware of uncertainty in their tax affairs. For example, if a business is uncertain of the correct tax treatment to be applied, and HMRC’s position is not known, there is no requirement to make a notification, yet uncertainty remains”. Accordingly, it is proposed to introduce a third “trigger”, applying where:

• there is more than one credible legal interpretation; and
• HMRC’s view is not known.

The consultation notes that this builds on guidance recently published by HMRC which recommends that taxpayers include information in their tax return regarding any significant factual or legal uncertainties, as well as any novel legal positions which the taxpayer has adopted.

Notification process

Under the existing regime, the deadline for notifying HMRC of any arrangement to which the UTT regime applies depends on the tax (or taxes) to which the arrangement relates. HMRC recognise that, if the regime were expanded to include a wider range of taxes, this could trigger several notification requirements with different deadlines, depending on the taxes involved. It is therefore proposed to introduce a new single annual date by which all UTT notifications must be submitted, regardless of the tax (or taxes) involved.

Exemption

Businesses are currently exempt from notifying HMRC under the UTT regime if it is reasonable to conclude that HMRC already have the relevant information in their possession. However, it has been proposed to tighten this exemption by requiring the taxpayer to have confirmation from HMRC that HMRC is aware of the uncertainty.

Next steps

The consultation runs until 4 June 2026. The Government expects to publish its response in summer 2026, with the intention of introducing legislation in the next available Finance Bill (likely towards the end of 2026) which will apply to returns filed after 1 April the following year.

If introduced as proposed by the consultation, these reforms are likely to have a significant impact on many wealthy individuals and high-value trusts. In particular, the proposed third trigger — requiring notification where there is more than one credible legal interpretation and HMRC's view is not known — could capture a broad range of scenarios (including, for example, where new legislation has been enacted but HMRC is yet to issue guidance), potentially requiring notification even where the taxpayer's position is reasonable and well-supported, and significantly increasing the administrative burden for such taxpayers. No doubt responses to the consultation will highlight these concerns, but the extent to which the Government is prepared to scale back its proposals remains to be seen.

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