Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Tax Compliance Risk Management

From
HM Revenue & Customs
Updated
, see all updates

The Business Risk Review (BRR): Business Risk Review Assessment indicators: Delivery: assessing tax accounting arrangements: General

One of the key factors in determining whether a customer is capable of paying the right tax at the right time is whether they have the appropriate systems and processes in place to do this. The importance of tax accounting arrangements in managing large business tax compliance has been recognised in the introduction of the Senior Accounting Officer (SAO) measure. The work which customers do to ensure that they meet the SAO requirements and any discussions which CRMs have with them about this potentially provide us with some important information which we can use to assess customers’ Delivery.

In general, if a customer qualifies under the SAO measure and they have a fully open and transparent relationship with HMRC (which means they have shared with us their broad approach to managing tax compliance risk), then the latest or forthcoming SAO certificate may be accepted as the main evidence of the extent to which the customer has appropriate tax accounting arrangements in place. In cases where a customer is not a qualifying company for SAO, or the relationship with a customer is such that they do not readily discuss their tax accounting arrangements with us, CRMs may need to obtain other evidence using the methodology described below to determine whether or not the customer has appropriate tax accounting arrangements in place.

In assessing tax accounting arrangements we will generally want to take a ‘top down’ approach which starts by considering the overall governance and control framework within which the customer identifies and manages tax risk, only auditing or testing specific systems if we find weaknesses in the practical application of these frameworks. In doing this we will want to take full account of work which the customer has already done to assure themselves that their systems and processes are producing accurate numbers for their tax returns.

The following approach provides a structured way of assessing customers’ tax accounting arrangements which is consistent with the above. Experience has shown that where this approach has been used both parties have benefited in terms of an improved relationship and greater understanding of the customer’s overall tax risk.

The approach involves three stages:

  • Understanding the governance framework within which the customer manages tax compliance risk and how this applies in practice by reference to some key business events;
  • Understanding how the customer ensures that their systems and processes produce the right tax figures by reference to some key risk areas; and
  • In exceptional circumstances, testing these systems and processes.

The diagram provides a pictorial overview of these three stages and how they relate to each other.

General flowchart (Word 28KB)

General flowchart text version (Word 26KB)

Reliance on customers is an important aspect of this approach. Recognising the investment being made by customers in governance, processes and systems, our aim is to work with them to avoid duplication of effort and, in doing so, develop a truly collaborative approach to tax compliance. As such the approach allows flexibility to incorporate the range of approaches adopted by our customers.