Major projects advance clearance
Major projects advance clearance
Lack of certainty over the tax treatment of major projects can deter businesses from committing to investments and accepts that existing processes are inadequate for the most complex and innovative projects.
Therefore, to support the government’s plan for economic growth, it has launched a consultation on introducing a dedicated service to provide statutory certainty over how tax rules will be applied to a project.
We have analysed the consultation document and explain below how it is proposed to work alongside some key questions that will need to be addressed for this to be an attractive proposition.
The consultation runs until 17 June 2025, and we will be submitting a detailed response. Please let us know your thoughts on the matters raised. Read the full consultation here.
What will the clearance process be?
It is envisaged that the process would involve the following steps:
- An optional early engagement discussion with HMRC
- Written clearance submission
- Scoping meeting between the taxpayer and HMRC within 30 days of submission
- Clearance consideration by HMRC within a further 30 days, unless otherwise agreed
- Issuance of clearance
Who will be eligible to use the clearance?
It is proposed that the service will be available to corporate entities either already within the charge to UK corporation tax, or which will be within the charge to corporation tax in respect of the planned project.
Q: This would need to be carefully defined, especially given that it is envisaged that this service will be available for those intending to bring inward investment into the UK from overseas. For example, an overseas group parent of an infrastructure group may evaluate a potential project but the UK resident project vehicle may not be formed unless or until the project proceeds. In these circumstances, we would consider that the service should be available to the overseas group parent.
Will there be a project size threshold?
It is intended that the clearance mechanism will be available to only the largest and most significant projects. A threshold is therefore likely, which will be linked to the authorised project spend on fixed and intangible assets.
However, due to the expected limited capacity for HMRC to deliver this service, it is stated that the threshold would be in the hundreds of millions, which would mean only dozens of projects qualify each year.
Q: We understand the need for HMRC to have sufficient resources to deliver the proposed service, but we anticipate that the envisaged scale of limitation could be counterproductive.
We believe it would be more helpful for the qualifying criteria to be set by reference to projects that are of national or strategic importance rather than to levels of expenditure. The need for clearance is derived from the level of uncertainty in relation to the tax treatment, rather than to the level of expenditure. There could be substantial projects for which the tax treatment is reasonably certain, and less substantial projects affected by significant uncertainty. If the projects concerned are of national or strategic importance, then they should qualify regardless of scale.
What taxes will the clearance cover?
It is suggested that the main focus of the service would be corporation tax matters but that the Government is open to exploring the case for including other taxes such as Stamp Taxes, VAT and Employment Taxes. By their very nature, the largest and most complex projects will have exposures across the full range of taxes.
Will the clearance decision be binding?
It is proposed that any clearance would be a binding decision as to HMRC’s view of the application of the law to the facts, provided these have been fully disclosed and are not misrepresented. Of course, HMRC’s view of the application of the law to the facts is not necessarily always correct in law.
The proposal also considers various ways in which HMRC, having given an advance certainty clearance, could no longer be bound by it. This includes where key assumptions are no longer being met and changes in law have taken effect. It is also suggested that the maximum duration of an advance certainty clearance will be five years, although there are proposals for renewal of clearances if projects extend beyond a five-year lifespan.
Q: Given the long-term nature of the projects that would qualify for this process, we believe ‘certainty’ should mean that the UK Government stands behind the clearances that are given for the full duration of the project.
Similarly, provided that taxpayers have relied on the clearances given and the facts presented remain accurate, projects that have been given advance certainty clearances should be excluded from the impact of subsequent changes in legislation – at least for the duration of the project.
Should HMRC charge a fee for this service?
It is possible that taxpayers may be willing to pay a fee to achieve certainty, but this would clearly depend on the quality of certainty being provided. As the current proposals suggest a limited life of five years and no protection from any change in law, we suggest that it should operate as an unpaid service, consistent with the approach currently taken by both HMRC and other tax authorities.
If the proposal were for the clearance to be valid for the full duration of a project and with protection from subsequent change in the law, this would then be more valuable in terms of risk mitigation, which could then justify a fee.
Publishing clearances
The consultation suggests that the outcome of advance certainty clearance applications could be made public so that they are of wider benefit.
Q: We would expect such publication would be a disincentive to use the service, especially if a fee is required. Even if anonymised, the scale of the projects concerned are inevitably going to make identification of the applicant relatively straightforward.