Although the UK tax authorities (HMRC) already offer tax clearance support for businesses in specific situations, the government has recognised that lack of certainty about the tax treatment of major projects can deter businesses from committing to investments in the UK. It has therefore launched a consultation on a proposal for a dedicated service to provide binding advance clearances on “the very largest and most innovative investment projects” (‘major projects’). The aim is to provide statutory certainty over how the tax rules will be applied to a project. The consultation will close on 17 June 2025, at which time the government will assess the responses and issue its own response, including next steps.
In addition to the major projects advance clearance proposals, the government plans to update its current arrangements for negotiating advance pricing agreements (APAs) to encompass situations where a group has cost contribution arrangements (CCAs) in place. This will be particularly useful where groups share the costs and benefits of developing intellectual property and other intangible assets. The aim is to “provide certainty that CCAs will be respected as the framework for pricing CCA transactions” in an APA that itself can last for up to five years.
Essential aspects of the consultation are as follows:
Julia McCullagh
BDO in United Kingdom
In addition to the major projects advance clearance proposals, the government plans to update its current arrangements for negotiating advance pricing agreements (APAs) to encompass situations where a group has cost contribution arrangements (CCAs) in place. This will be particularly useful where groups share the costs and benefits of developing intellectual property and other intangible assets. The aim is to “provide certainty that CCAs will be respected as the framework for pricing CCA transactions” in an APA that itself can last for up to five years.
Essential aspects of the consultation are as follows:
- Covered Taxes and Duration: The main focus of the advance clearance service would be corporation tax matters for both tangible and intangible investments—the UK tax treatment of intangibles can be complex so advance clearances could be helpful. The government is also open to exploring the case for including other taxes such as stamp taxes, VAT and employment taxes as, by their nature, the largest and most complex projects would have exposures across the full range of UK taxes. However, the consultation makes clear that the service would not address any tax issue where HMRC believes that tax avoidance concerns are relevant. Therefore, it is likely to prevent groups from obtaining rulings on whether or not interest expense is tax deductible in the UK where intragroup financing is proposed and the UK’s unallowable purpose test may apply. HMRC is proposing that advance clearances be issued for a five-year period, which may be renewed in specified cases.
- Eligibility: The clearance mechanism initially would be available only to groups directly undertaking the largest and most significant projects that are or would be within the charge to UK corporation tax. It would not be necessary for the entities to have an existing UK presence at the time an application is made for a clearance but intend to establish a presence once the investment project moves forward. A value threshold is envisaged that would be linked to the authorised project spend on fixed and intangible assets and is likely to be in the hundreds of millions of pounds.
- Process: The exact timeline for a clearance would depend on each case but the steps in the application process would have specific completion dates to avoid delays:
- An optional early engagement discussion with HMRC;
- A written application;
- A scoping meeting between the taxpayer and HMRC within 30 days of submission of the application (and earlier if warranted by the circumstances);
- Clearance consideration by HMRC within a further 30 days, unless otherwise agreed; and
- The issuance of a clearance.
- Binding Nature of the Clearance: HMRC is proposing that any clearance would be a binding decision as to HMRC’s application of the law to the specific facts set out in an application provided these are fully disclosed and not misrepresented. However, the tax authorities should not be bound by a clearance where key assumptions are no longer being met, changes in the law have taken effect or the clearance has expired (i.e., the five-year period has elapsed).
- Cost: The government is considering requiring payment for an advance tax clearance and thus is seeking views on whether businesses would be willing to pay a fee and how this might be affected by the duration of the clearance and level of certainty it offers and whether HMRC published anonymised versions of the clearance as guidance for other businesses. We believe that if the clearance was valid for the full duration of a project and kept confidential for that time, this would be more valuable in terms of risk mitigation, which could then justify a fee.
- Effective Date: The advance tax clearance process is expected to be implemented in 2026.
BDO Insight
While the advance clearance service would undoubtedly be useful for some major investors into the UK, there are many businesses that would not benefit. However, there are already many ways for all inbound businesses to achieve certainty over their UK tax position and BDO’s team have extensive experience in helping businesses plan UK investments and business models with robust and reliable tax and ROI forecasts.Julia McCullagh
BDO in United Kingdom