HMRC ups the ante on large company tax compliance

This month, HMRC is relaunching it’s new and improved approach to evaluating the level of tax compliance at the UK’s largest companies who are overseen by their large business service (LBS). The Business Risk Review process applies to around ‘2,000 large corporate organisations, rating them on their behaviour and strategy in relation to tax’ (1).

The relaunch follows the consultation period in late 2017, where participants identified the changes they wanted to be made. Mostly notably, these included:

  • Classifying customers across an increased number of risk categories
  • Taking more account of the tax risk management work already required by large businesses
  • Prompting continuous dialogue between HMRC’s Customer Compliance Managers (CCM) and their customers on reducing tax risks, and
  • Clearly setting out the advantages and disadvantages of being classified in a certain risk category (2).

According to the summary of responses document, ‘the consultation also raised potential risks and concerns from implementing these changes, which will require further research and investigation’. HMRC then set about iterating new ways of working and devised a pilot study of its new ‘Business Risk Review +’ (BBR+) which it ran with 65 companies in 2018.

Since the study, BBR+ has been nuanced based on the feedback of participating organisations and is now ready for roll out (1). And reflecting on the consultation responses, the new approach is unsurprising.

What’s new

Under the new system, the assessment is no longer binary – businesses are not simply ‘low risk’ or ‘non-low risk’, but can be rated as low, moderate, moderate-high, and high (1). The BRR+ process is as follows:

  • Consider the landscape in which the business operates, and its potential impact on the inherent level of tax compliance risk the customer presents (HMRC are clear that even a complex business can achieve a low-risk rating)
  • For each applicable tax regime, consider the effect of the customer’s behaviour on their inherent risk – does their relationship with HMRC, their Systems and Processes, Internal Governance and their Approach to Tax Compliance tend to increase or decrease their inherent risk?
  • Consider the overall risk rating of the business
  • Agreeing the customer’s overall risk status
  • Agreeing any action required to reduce the level of risk

The BRR+ should be a collaborative process with the business forming their own view of how they match up to the risk criteria, comparing their findings with the CCM and discussing any differences. In a group structure, different divisions can receive different risk ratings, but the lowest rating will inform the overall rating of the business.

In compiling the findings, HMRC will complete sections for Corporation Tax, Employment Duties, VAT, Customs and International Trade and Excise, giving an individual risk rating for each. Where other taxes are relevant to an individual business, for example environmental taxes, these will also be given an individual rating by HMRC.

It’s important to note that BBR+ will take place at least annually for companies who are not judged to be in the low risk category. For low risk businesses a BRR+ will, in general, be carried out on a three-year cycle’ (1).

HMRC are pretty confident that the changes will have a significant positive impact. Over the last year, an additional £10 billion has been collected from large corporates through this work and in challenging contrived arrangements, so HMRC believe further scrutiny can only help to ensure greater tax compliance across the board and of course increased yield for the Exchequer (1). What will be interesting is the impact that the changes to off-payrolling will bring to risk ratings once this rolls out next April. Any failure to assess status correctly, or worse, to not even embrace the new legislation, will surely increase a business’ risk rating and could even see the SAO guilty of the corporate criminal offence of tax evasion (3).

Sources

(1) https://www.accountancydaily.co/hmrc-ramps-rating-system-large-company-tax-compliance (2) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691373/Large_Business__compliance___enhancing_our_risk_assessment_approach.pdf

(2) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691373/Large_Business__compliance___enhancing_our_risk_assessment_approach.pdf

(3) https://www.gov.uk/government/publications/corporate-offences-for-failing-to-prevent-criminal-facilitation-of-tax-evasion