BKM509100 - Interaction of the Code with other measures: Large Business tax strategy

FA16/SCH19/PART2 includes a requirement for large businesses to publish their tax strategy in so far as it relates to UK taxation.

The requirement applies to all qualifying UK groups, UK sub-groups and qualifying companies and includes UK permanent establishments. These terms are defined in FA16/SCH19/PART1and will include the majority of banks which have adopted the Code. HMRC published guidance on the requirement on 31 March 2016.

The policy objective is set out in the Explanatory Note published at Autumn Statement 2015:

“The publication of tax strategies will ensure greater transparency around a business’s approach to tax to HMRC, shareholders and consumers. Board level oversight of those strategies will embed tax strategy in existing corporate governance processes. Taken together this should drive behavioural change around tax planning and therefore enhance tax compliance.”

The Code was introduced with a similar objective (i.e. to drive behavioural change around tax planning and therefore enhance tax compliance) and we have seen a behavioural shift by banks since it was introduced.

The government requires all qualifying businesses to publish a tax strategy regardless of whether or not they are already exhibiting low risk behaviour and banks who have adopted the Code will be required to publish their tax strategy if they are a qualifying group or company.

For qualifying UK groups, UK sub-groups and qualifying companies the tax strategy should cover:

(a) their approach to risk management and governance arrangements in relation to UK taxation,

(b) their attitude towards tax planning (so far as affecting UK taxation),

(c) the level of risk in relation to UK taxation they are prepared to accept, and

(d) their approach towards its dealings with HMRC,

(e) and may also include further information.

The obligations required by the Code are more stringent than those under the large business tax strategy. The more general rules are not therefore expected to impose new obligations on banks who have adopted and adhere to the Code.

For (a) we expect a bank which has adopted the Code to be able to demonstrate that it has adequate governance in place to ensure it meets all its Code commitments including the commitment to comply fully with all its UK tax obligations. Its published tax strategy should include sufficient information to enable customers and shareholders or members to recognise this is the case. See paragraphs 2 and 2.2 of the Code, paragraph 1.1 for small banks.

For (b) and (c) we expect a bank’s entries to reflect its obligations the Code.

For (d) we expect a bank which has adopted the Code to state that it maintains a transparent relationship with HMRC.

If a bank, which has adopted the Code, does not include the information outlined above in its published tax strategy, HMRC will ask the bank to explain this and provide reassurances that it remains committed to the Code.