HMRC’s desire to ensure large businesses are held publicly accountable for meeting their UK tax compliance obligations has led to a new requirement for these businesses to publish their tax strategy on the internet.
What must the tax strategy document cover?
It must set out the organisation’s:
- approach to risk management and governance regarding UK tax;
- attitude towards tax planning;
- level of UK tax risk that it is prepared to accept; and
- approach towards its dealings with HMRC .
This new measure is aimed at promoting greater transparency over an organisation’s approach to tax risk and how this is managed. In our view, it ensures tax remains firmly on the boardroom agenda by setting out the tax ‘tone from the top’ and ensuring the organisation’s approach to tax governance processes is clear for all to see .
Who is impacted?
- UK companies, groups and partnerships whose aggregate annual UK turnover for the previous financial year exceeded £200m or whose aggregate UK balance sheet total (ie total assets) for the previous financial year exceeded £2bn .
- UK subsidiaries of multi-national enterprise (MNE) groups that had a global annual consolidated turnover in the relevant period for country-by-country reporting purposes of €750m or more . We expect that this will catch some comparatively small UK subsidiaries of large MNEs.
When does this measure apply?
The requirement to publish a tax strategy applies for accounting periods beginning on or after 15 September 2016 (the date Finance Act 2016 received Royal Assent). In the first year, the business must publish its tax strategy before the end of its financial year.
Risks arising from a failure to comply
If an organisation’s tax strategy is not published in full more than 30 days after the deadline for publication, it may become liable to an initial penalty of up to £7,500.
However, the potential damage to the business’s reputation with HMRC and the public, given that the press and focus groups are likely to pay particular attention to which organisations have published and the content disclosed, is likely to be of greater concern.
What businesses need to do
Key actions for businesses are likely to include:
- identifying and developing their tax strategy and supporting governance model;
- forming a clear view as to how the business wishes to portray its approach to tax, in particular tax planning;
- consideration of how much detail the organisation wishes to publish;
- briefing key stakeholders (such as the board, public relations and audit committees); and
- assessing the business’ current position in being able to meet its obligations and ensuring the strategy reflects reality.
The requirement to publish a tax strategy may be an unwelcome compliance burden for some and is effectively an extension to the existing senior accounting officer regime. It will also sit alongside the country-by-country reporting requirement for MNEs, which we comment on here.
However, some businesses, such as those with strong consumer brand values or those heavily involved in public sector procurement, may even wish to voluntarily adopt these new provisions. It may be an opportunity for such businesses to put out a positive message about their tax affairs to the public and other interested stakeholders.