HMRC consultation on risk profiling for large business

Wed 27 Sep 2017

For the last 10 years HMRC has been using a ‘business risk review’ process to profile large businesses to assist in its management of tax compliance for this sector. This categorises businesses into ‘low-risk’ and ‘non low-risk’.  It is now consulting on possible changes to that review process, potentially including a greater number of categories, with the aim of continuing to improve large business compliance behaviours and providing greater clarity for large business on where they sit on the scale of risk category.

The consultation document discusses different options for increased categorisation and reference is made to the OECD Forum on Tax Administration’s reference to the ‘tax compliance framework’ (TCF).  The question is asked as to whether in order to achieve a low risk rating, a business would need to demonstrate the alignment with the six key factors in the TCF.  These are:

• an established tax strategy;

• the application of TCF comprehensively, embedding it into all business processes;

• responsibility should be assigned and the role of the tax department properly recognised and resourced;

• the tax governance process should be documented and its effectiveness regularly reviewed;

• compliance with policies and procedures should be regularly monitored and tested;

• the TCF should be capable of providing assurance to both internal and external stakeholders.

The prospect is raised of possible incentives for those in the low risk sector, such as quicker clearance procedures or offering a view on novel arrangements more speedily. For those in the higher risk categories the question is asked as to whether the requirement to adopt a code of practice on tax would encourage them to move into the low risk sector.

In our view greater risk categorisation could result in improved standardisation of approach by HMRC to the categorised risk profiles, particularly if based on objective, auditable processes. This offers the opportunity to bring greater certainty to business, especially if it results in HMRC’s efforts being more accurately targeted.  HMRC will, however need to allocate adequate resource to this business risk review process and its liaison team with large business – the customer relationship managers (CRM).  We currently see a variable level of CRM allocation to large businesses.

We are sceptical that requiring businesses to sign up to a code of practice on tax will be effective in incentivising them to move from high risk to low risk. Whether the incentives for those in low risk categories can be operated fairly remains to be seen.  The complexity of some businesses may mean they are unable to get into the low risk category, so it would seem unfair to exclude those in this category that make every effort to comply with the spirit and intention of UK tax law.  The success of the types of incentive discussed for low risk taxpayers will depend on the quality and resources HMRC is able to devote to these advance clearance and speedy response services.

Comments on the consultation are requested by 6 December 2017. To discuss how the issues raised in this consultation may affect you please get in touch with your usual Mazars corporate tax contact