Seven years ago, HMRC began requiring large corporates to publish a UK tax strategy. Is it working?

It’s that time of year for businesses with a 31 December year-end to look at their published tax strategy, update it and re-publish it. HMRC would like to see details about the tax function, but in reality, many businesses are simply complying with the letter of the legislation by carefully changing the date every year, creating yet another admin task for large businesses. So, what is this legislation for? 

In 2016, public opinion on the tax affairs of large businesses was low. Various multinational organisations had been in the news and the government was under pressure to show how it was challenging tax avoidance.

Against this backdrop, large businesses were required to publish their tax strategies which would cover:

• how the business manages UK tax risks;
• the business’s attitude to tax planning;
• the level of risk the business is prepared to accept for UK taxation;
• how the business works with HMRC.

The strategy is required to be published on the business’s website and failure to publish can lead to an initial penalty of £7,500.

Some very large businesses have indeed taken this opportunity to publish lots of details about their tax. Vodafone and Shell have detailed tax strategies that have much more to do with consumer relations and their environmental, social and corporate governance ('ESG') credentials. 

However, most businesses within the regime publish very little detail, not wanting to publicly declare details about how they manage their tax – and it’s easy to see why they might do this. Maintaining and updating a detailed tax disclosure is hard work, especially if no one except HMRC is looking for it.

Increasingly, businesses are required to publish tax strategies even if they’re not actually that large – for example, any UK subsidiary of a multinational group with a EUR 750m turnover or more must publish, even if the UK subsidiary is very small. Businesses must also publish a tax strategy if the aggregate group turnover of UK companies exceeds £200m or the aggregate group balance sheet of UK companies exceeds £2bn – but this threshold has not moved since the rules were introduced, and £200m in 2016 is equivalent to £262m today, meaning smaller businesses are falling into this. 

In addition, HMRC itself isn’t clear whether this legislation is delivering. In the first few years, it called strongly for more detail in strategies, even where not legislatively required. Now we see it only briefly mentioned in the context of an HMRC Business Risk Review+ process. HMRC also have a non-statutory practice of giving businesses 30 days to comply if they find the strategy missing, meaning in practice there are very few penalties levied. 

It is also a commitment within this year’s ‘Evaluation of HMRC’s implementation of powers, obligations and safeguards’ report to 'review how to best clarify the scope of multinational enterprises’ obligations with respect to publishing their tax strategies'. 

It is not clear yet what this will look like – but at the moment, this requirement has turned into an administrative burden borne by businesses which doesn’t seem to be serving HMRC’s purposes either. We look forward to hearing more. In the meantime, we wish those with a December deadline to update their strategies a Merry Christmas!