Large business - spotlight on tax strategy

17 February 2016

It cannot have escaped your attention that the UK tax affairs of large corporates are under an unprecedented level of scrutiny, with the tax policies of major corporations such as Google being debated on a daily basis in the national media.

This is likely to ramp up even further once legislation is enacted later in the year requiring large businesses (broadly those corporate groups and partnerships with more than £200m turnover and/or balance sheet total assets of more than £2bn) to publish details of their tax strategy.

These new measures will impact many more businesses than those multi-nationals we have become used to reading about, and will apply regardless of the complexity of the legal structure and the location of commercial operations. 

In addition, a ‘special measures’ regime will apply to large businesses that HMRC regards as being ‘persistently uncooperative’ and could lead to additional penalties and possible public ‘naming and shaming’. 

Businesses that fail to fully comply with the provisions will therefore face additional scrutiny of their tax affairs and reputational risks in the ‘court of public opinion’.

What does this involve?

For accounting periods starting from the enactment of Finance Bill 2016, large corporates and partnerships will be required to annually publish details of their strategy in relation to all major UK taxes, including corporation tax, VAT and arrangements in relation to employment taxes.

The published tax strategy must describe the following:

  • the business’s approach to UK tax risk management and governance;
  • the business’s attitude towards UK tax planning;
  • the level of UK tax risk that the business is prepared to accept; and
  • the approach of the business towards its dealings with HMRC.

The annual tax strategy must be made freely available on the internet for at least a year or, if sooner, until the following year’s strategy is published. It may also be published elsewhere, for example, in financial statements in line with the current practice of many FTSE100 listed companies.

It will be important that the published tax strategy does more than merely pay lip-service to the requirements. Recent research commissioned by HMRC identified that the formalities associated with a tax strategy and the language included is indicative of a business’s overall approach to tax.

So, it is likely that HMRC will pay close attention to content of businesses’ published tax strategies and will use this as additional tool for risk assessment.

Of course, the fact that a business’s tax strategy will be in the public domain will mean that other stakeholders will also have the opportunity to review it and make peer group comparisons.

Actions to take

These changes are on their way, and large businesses should prepare for their introduction now to mitigate tax and reputational risks.

RSM works with many businesses that are affected by these provisions, so please talk to your existing RSM tax contact who can work with you to help you understand the new regime and, if necessary, assist with devising and articulating a tax strategy which is coherent, robust and fit for purpose.

For more information please get in touch with Dan Robertson or your usual RSM contact.

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