CAP 1: New, 'improved' clearance procedure

BDO's Jeff Webber highlights changes to HMRC's non-statutory  procedure for pre-checking complicated personal tax issues.

On 31 October 2011, HMRC published a final version of its new non-statutory clearance procedure for non-business taxpayers , ‘Clearances and Approval 1’ (CAP 1). This replaces the former Code of Practice 10 (COP 10), and operates alongside HMRC's non-statutory clearance service for business taxpayers.

Under CAP 1 (as under COP 10), HMRC will give taxpayers or their agents its view on how recent tax legislation applies to a transaction which may already have been undertaken, or which is proposed, where there is some uncertainty as to the tax treatment.  “Recent” will generally mean within the last four years, but (unlike the COP 10 procedure), HMRC will now also give a view on legislation older than this, where the applicant can demonstrate that its published guidance does not cover the uncertainty in question.

A CAP 1 response will not constitute an appealable decision unless this is specifically stated.

HMRC states that CAP 1 “does not change the service provided by HMRC to customers”, but that it is clearer, short and that it “reflects HMRC’s full range of tax responsibilities”. However, the extension of the scope of CAP 1 to rulings on legislation more than four years old is a major improvement to the former COP10 procedure.

On the other hand, the scope of CAP 1 may be narrower than CAP 10, which listed five areas on which HMRC would give a view:

• the interpretation of legislation passed in the last four Finance Acts
• the application of double taxation agreements        
• whether someone is employed or self employed
• Statements of Practice and extra-statutory concessions; and
• other areas concerning matters of major public interest in an industry or in the financial sector.

HMRC now states: “If your query is about a matter other than the interpretation of recent tax legislation HMRC may still provide a suitable response, such as pointing you to the relevant online guidance.” It will be interesting to see the responses to any requests concerning the other areas listed in COP 10, in view of HMRC’s assurance that CAP 1 does not change the service provided.

Another difference from COP 10 is that there is now a formal and more comprehensive checklist of information to be supplied to HMRC as part of the CAP 1 application. This should assist both HMRC and taxpayers, by eliminating delays due to the omission of information, and by helping to ensure that HMRC’s view is binding, by providing all relevant facts.

Jeff Webber is a Tax Director with BDO LLP and a consultant on BDO’s Tax Support for Professionals Taxline (0845 356 0006). Email: jeff.webber at bdo.co.uk

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