Corporate report

Review of tax administration for large businesses

Published 30 November 2021

At Spring Budget 2021, the government announced a review of large businesses’ experiences of UK tax administration – in recognition of the role tax administration plays in supporting the UK’s competitiveness and promoting investment. HM Revenue and Customs (HMRC) and HM Treasury (HMT) have engaged with stakeholders to discuss their experiences and today (30 November 2021) the government is announcing its response.

The government is grateful for stakeholders’ participation in the review and has carefully considered their feedback. The government looks forward to engaging further with stakeholders in designing and implementing the changes outlined below.

Review process

The review leveraged the various forums through which HMRC regularly engages with stakeholders in combination with additional dedicated events and meetings.

The discussions explored current challenges and areas for improvement, with a particular focus on:

• tax risk and certainty
• compliance, enquiries and disputes
• the co-operative compliance and Customer Compliance Manager (CCM) model

The review considered large businesses’ experiences across taxes and duties, irrespective of the HMRC directorate they ordinarily interact with, and complements the wider Tax Administration Framework Review.

Summary of feedback

In general, stakeholders were positive about UK tax administration and regard HMRC as amongst the top tier of tax administrations globally. Stakeholders were positive about the way HMRC worked with them through the pandemic and were keen to build on this experience.

Stakeholders were positive about HMRC’s co-operative compliance model and the CCM model. However, they felt that the experience could be inconsistent and that HMRC should continue to build capability and increase consistency of experience to support continued improvement in large businesses’ experience of tax administration. There was a desire to support co-operative compliance, to build trust and to recognise and leverage positive behaviours.

Throughout the review, businesses emphasised the importance of mitigating uncertainty across all taxes and duties and highlighted the implications of complexity and levels of change, particularly for those operating in the international environment.

Stakeholders highlighted the importance of timeliness in managing risk and uncertainty. Discussions explored ways that stakeholders seek to manage tax risk and uncertainty, including clearances, real time working, compliance facilities and HMRC guidance.

Stakeholders were interested in securing upfront certainty on tax treatment, particularly for complex and high-value transactions and those with a binary tax result. Many referenced the significant changes emanating from implementation of the international Base Erosion and Profit Shifting (BEPS) project. This also linked to enquiries.

Stakeholders identified long-running enquiries as a source of uncertainty. They highlighted the importance of timelines as well as transparency in their experiences of enquiries and dispute resolution processes including reviews, alternative dispute resolution and litigation. The particular challenges within transfer pricing enquiries were explored.

Across the review discussions, recurring themes also included clarity and transparency, governance, and engagement with specialists. In addition, a range of specific points were raised including in relation to certain legislative provisions.

Actions being taken in response

In response to stakeholders’ feedback, the government is announcing action to improve tax administration for large businesses and make the UK an easier place to do business.

The 3 main areas of focus are:

1. Mitigating uncertainty through new Guidelines for Compliance and improved guidance
2. Changes to help address long-running enquiries
3. Improving the co-operative compliance experience

1. Mitigating uncertainty through new Guidelines for Compliance and improved guidance

The government recognises the value to businesses of having a clear understanding of the tax treatment of their activities.

In response to the review, the government will invest to enable HMRC to develop a programme of new “Guidelines for Compliance”, reflecting the positive stakeholder feedback on the practical guidance that was piloted to support the Profit Diversion Compliance Facility. The new “Guidelines for Compliance” will provide practical guidance and greater transparency on the approaches HMRC regards as higher or lower risk and the associated response. HMRC is keen to explore with stakeholders which areas, across taxes and duties, would benefit from this approach and will look to introduce them in a way that works for both HMRC and businesses.

Further investment will be targeted at improving HMRC’s technical guidance and HMRC will work with external stakeholders to identify priority areas for guidance improvement or expansion.

It is expected that products should start to be delivered by mid to late 2022. This activity will also support and align with work on the notification of uncertain tax treatment proposals.

2. Changes to help address long-running enquiries

HMRC is keen to support the timely and efficient progression and resolution of enquiries, in line with HMRC’s co-operative compliance model, the HMRC Charter and the Litigation and Settlement Strategy. This includes parties working proactively together, to agreed timescales, to resolve tax disputes.

In support of these aims HMRC has been engaging with external stakeholders to explore ways to improve transfer pricing enquiry effectiveness, as these enquiries can be particularly difficult. The discussions have focused on issues and barriers in relation to transfer pricing documentation, trust and transparency, fact finding and evidence, and governance and case resolution.

Notwithstanding the work to deliver on these aims through best practice approaches and improving the co-operative compliance experience, HMRC remains keen to address the challenge of long-running enquiries. Therefore, working with external stakeholders, HMRC will establish new, objective indicators of long-running enquiries and a clear and transparent process to accelerate their resolution.

Indicators could include, for example, the duration of certain phases of the enquiry process, and other factors linked to the Litigation and Settlement Strategy. Where the indicators are present, the process will enable businesses to challenge long-running enquiries, or to facilitate their conclusion, with clear actions, outcomes and accountability on both sides. HMRC expects work to agree the indicators and process to take place in early 2022.

3. Improving the co-operative compliance experience

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 stakeholders and look to make progress in 2022, with continued enhancements over time.

Co-operative compliance principles and high standards of professionalism will continue to underpin HMRC’s approach. 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 transfer pricing 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.

Additional

In response to feedback that issuing Certificates of Residence for corporates can be slow with the potential for adverse business impacts, HMRC will improve the systems and processes relating to the issuing of Certificates of Residence, including further digitalisation, to improve performance.

Mismatches between the positions adopted by different tax administrations can be highly problematic for large businesses, creating a risk of double taxation. HMRC has powers under treaties to make Advance Pricing Agreements (APAs) with other tax administrations, or enter into Mutual Agreement Procedures (MAPs) to resolve instances of double taxation. Officials will review how HMRC approaches these processes to better support cross border trade and movements of business, including how those processes are applied to outbound groups.

Stakeholders were clear that they valued the opportunity to engage with HMT and HMRC officials on development opportunities and expressed an interest in continuing this engagement.

The government considers that this process was mutually beneficial and is interested to maintain an ongoing open dialogue with stakeholders on these issues, through dedicated discussions at existing forums. The engagement will address large businesses’ experiences of tax administration, challenges and potential mitigations. It will also provide a channel to progress and evaluate the activity set out above.

As indicated through the review process, HMRC is keen to engage with stakeholders to co-create the future co-operative compliance and CCM model and is looking forward to progressing that.

Interested stakeholders can continue to contact HMRC via ReviewforLB@hmrc.gov.uk.