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HMRC internal manual

Tax Compliance Risk Management

From
HM Revenue & Customs
Updated
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Business Risk Review (BRR): Business Risk Review Assessment indicators: Behavioural indicators

CRMs should assess their customer’s tax compliance risk management behaviour against the following criteria. Where terms such as ‘significant’ and ’appropriate’ are used these are relative to the degree of inherent risk present. In other words, what is appropriate will differ depending on whether a customer has to mitigate ‘Significant Inherent Risk’ or ‘Low Inherent Risk’ for example.

 

1. Governance - the customer’s openness and co-operation with HMRC and the management accountabilities for managing tax risk.

 

Low Risk definition
  • The customer is open with HMRC in real time about how they manage tax compliance risk across all relevant taxes and duties; and
  • The customer raises significant compliance issues, uncertainties and/or irregularities with HMRC in real time; and
  • The customer promptly provides full, accurate and helpful answers to HMRC queries; and
  • The customer is aware of their obligations across all taxes and duties, seeks assistance as necessary and provides appropriate resources to deal with those obligations; and
  • The customer has clear accountabilities up to and including the Board for the management of tax compliance risk and tax planning.

     

Tends to reduce risk definition
  • The customer meets all the Low Risk Governance criteria, with the exception of one criterion in just one regime.

 

Tends to increase risk definition
  • The customer meets all the Low Risk Governance criteria, with the exception of one criterion in more than one regime; or
  • The customer fails more than one of the Low Risk Governance criteria in just one regime.

 

Increases risk definition
  • The customer fails more than one of the Low Risk Governance criteria in more than one regime.

     

 

2. Delivery - The customer’s ability to deliver the right tax through systems, processes and skills.
 

Low Risk definition

  • The customer has a history of accurate and timely returns, declarations, claims and payments across all relevant taxes and duties; and
  • The customer has appropriate tax accounting arrangements in place.

 

Tends to reduce risk definition
  • The customer makes occasional significant errors in their tax returns in one regime; or
  • The customer occasionally fails to make their returns on time in one regime; or
  • The customer’s tax accounting arrangements have minor shortcomings which may result in tax returns which are not accurate in all material respects, but the customer is taking clear action to resolve these shortcomings within reasonable timescales.

 

Tends to increase risk definition
  • The customer makes occasional significant errors in their tax returns in more than one regime; or
  • The customer makes regular significant errors in their tax returns in one regime; or
  • The customer regularly fails to make their returns on time in one regime; or
  • The customer occasionally fails to make their returns on time in more than one regime; or
  • The customer’s tax accounting arrangements have minor shortcomings which may result in tax returns which are not accurate in all material respects and the customer has no current plans to resolve these shortcomings; or
  • The customer’s tax accounting arrangements have significant shortcomings which will result in tax returns which are not accurate in all material respects, but the customer is taking clear action to resolve these shortcomings within reasonable timescales.

 

Increases risk definition
  • The customer makes regular significant errors in their tax returns in more than one regime; or
  • The customer regularly fails to make their returns on time in more than one regime; or
  • The customer’s tax accounting arrangements have significant shortcomings which will result in tax returns which are not accurate in all material respects and the customer has no current plans to resolve these shortcomings.

 

3. Tax Strategy - the customer’s involvement in tax planning which does not support genuine commercial activity.

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 Low Risk definition

  • The customer is not involved in tax planning other than that which supports genuine commercial activity; and
  • The customer does not structure transactions in a way which gives a tax result contrary to the intentions of Parliament; and
  • The customer tells us about significant transactions involving innovative interpretation of tax law and fully discloses any legal uncertainty; and
  • The customer is not involved with illicit trades.

 

Tends to reduce risk definition
  • The customer tells us about significant transactions involving innovative interpretation of tax law and fully discloses any legal uncertainty, but occasionally engages in tax planning other than that which supports genuine commercial activity, or structures transactions in a way which gives a tax result contrary to the intentions of Parliament.
 
Tends to increase risk definition
  • The customer tells us about significant transactions involving innovative interpretation of tax law and fully discloses any legal uncertainty, but regularly engages in tax planning other than that which supports genuine commercial activity, or structures transactions in a way which gives a tax result contrary to the intentions of Parliament; or
  • The customer occasionally engages in tax planning other than that which supports genuine commercial activity, or structures transactions in a way which gives a tax result contrary to the intentions of Parliament and fails to tell us about significant transactions involving innovative interpretation of tax law, or fails to fully disclose any legal uncertainty; or
  • The customer is not directly involved in illicit trades, but is aware of such activity within their supply chain and does not draw HMRC’s attention to it and/or fails to take action to minimise the risk to the tax system.

 

Increases risk definition
  • The customer does not tell us about significant transactions involving innovative interpretation of tax law or does not fully disclose any legal uncertainty and is regularly involved in tax planning other than that which supports genuine commercial activity or regularly structures transactions in a way which gives a tax result contrary to the intentions of Parliament; or
  • The customer is directly involved in illicit trades.