Review of tax administration for large businesses

Following a review of large businesses’ experiences of UK tax administration, the government has published a summary of feedback and proposed a number of steps to take to improve engagement with taxpayers.

The response commits HMRC to seeking to improve its engagement with businesses in a number of areas, focussing on improved guidance, improved processes for long-running enquiries and continuing to improve the CCM model. In particular, the report commits HMRC to introduce “Guidelines for Compliance” to provide practical guidance to taxpayers on what HMRC regards as high or low risk behaviours and their consequences.

Background

The 2021 Spring Budget announced that the government would carry out a review of large businesses’ experiences with the UK tax authorities, in recognition of the important role that this plays in supporting the UK’s competitiveness. This review was carried out by HMRC and HM Treasury and utilised the various forums through which those government departments regularly engage with large business.

The review explored challenges for businesses and areas for improvement, focussing in particular on:

• Tax risk and certainty
• Compliance, enquiries and disputes
• The co-operative compliance and Customer Compliance Manager (CCM) model.

Feedback

In general, the report suggests that large businesses were positive about the UK tax administration and regard HMRC as amongst the top tier of tax administrations. In particular, businesses were positive about the way in which HMRC had worked with them during the pandemic.

Businesses were also positive about the co-operative compliance and CCM model, though noted that experiences could be inconsistent and that HMRC needed to continue to build capability and experience in this area. The report notes that there was a desire to support co-operative compliance, build trust and recognise positive behaviours.

One particular area of concern for businesses was the importance of managing tax risk and mitigating uncertainty. The implications of complexity and changes was cited, particularly in the international environment following the implementation of BEPS related changes. Unsurprisingly, businesses were interested in securing up-front certainty on tax treatment, particularly for complex transactions.

Long-running enquiries were singled out as a source of uncertainty. Businesses highlighted the importance of transparency, including in relation to timelines, and the particular challenges of transfer pricing (TP) enquiries were explored.

Overall, across the review, the report notes that the recurring themes were clarity and transparency, governance, and engagement with specialists.

Actions to be taken in response

As a result of the review, the government has announced that it will focus action to improve large businesses’ experience with UK tax administration in three main areas:

• Mitigating uncertainty through new Guidelines for Compliance and improved guidance
• Changes to address long-running enquiries
• Improving the co-operative compliance model.

Mitigating uncertainty

The government has announced that it will invest in HMRC to enable HMRC to develop a programme of new “Guidelines for Compliance”, reflecting the positive feedback that was received on the practical guidance that was piloted to support the Profit Diversion Compliance Facility. These new guidelines will provide practical guidance and greater transparency on the approach HMRC regards as high or low risk behaviour and HMRC’s response.

In addition, further investment will be targeted at improving HMRC’s technical guidance and HMRC will work with businesses to identify priority areas for improvement or expansion.

The report notes that the products of this action are expected to be delivered by mid to late 2022.

Addressing long-running enquiries

The report notes that HMRC are keen to support the efficient and timely resolution of enquiries and disputes and that, in support of these aims, HMRC has been engaging with businesses in particular to explore ways to improve TP enquiry effectiveness, as the report recognises that these enquiries can be particularly difficult. These discussions have focussed on TP documentation, trust and transparency, fact finding and evidence and governance and case resolution.

More generally, HMRC remains keen to address the challenges of long-running enquires and will work with businesses to establish new, objective identifiers for long-running enquiries and a clear and transparent process to accelerate their resolution. Identifiers will focus on the duration of certain phases of an enquiry and other factors linked to HMRC’s Litigation and Settlement Strategy. Where such indicators are present, the process would aim to enable businesses to challenge long-running enquiries and facilitate their conclusion. HMRC expects work to agree these indicators and processes to take place early in 2022.

Improving co-operative compliance

The report notes that HMRC will work with businesses to consider how co-operative compliance best practice can be delivered more consistently, with a focus on the priority areas identified by businesses, such as clarity and transparency on governance processes, project planning in relation to enquiries and clarity on the role of the CCM in resolving disputes and taxpayer questions. HMRC will engage with businesses and aims to make progress in 2022.

In addition, HMRC will build the feedback from the review into its training and development programmes, and continue the work underway to improve the experience in relation to TP enquiries.

For those large businesses that do not have a CCM, HMRC will continue to provide support through the Mid-sized Business directorate’s Customer Engagement and Support Team.

Certificates of residence and MAPs

One particular area of feedback was that issuing certificates of residence for corporates could be slow and so HMRC will commit to improving the systems and processes for issuing these certificates.

In addition, HMRC recognises that it can be problematic for businesses when different tax administrations take different approaches, creating risk of double taxation. Therefore, HMRC has undertaken to review the processes available to it (including APAs with other tax administrations and Mutual Agreement Procedures (MAPs) to resolve instances of double taxation.

Comment

The review carried out by HMRC and HM Treasury has clearly been viewed as a mutually beneficial process, with businesses valuing the opportunity to engage on issues and the government benefiting from the feedback. As such, the government intends to maintain an ongoing dialogue through dedicated discussions at existing forums. More generally, those interested in continuing to feedback on these issues can contact HMRC on ReviewforLB@hmrc.gov.uk.