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HMRC internal manual

Tax Compliance Risk Management

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HM Revenue & Customs
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The Business Risk Review (BRR): Business Risk Review Assessment indicators: Evidence to support the BRR

For each of the individual behavioural criteria CRMs must be able to demonstrate that they have a sufficient level of up-to-date knowledge and understanding of the customer to make a well-reasoned judgment about the level of risk the customer represents. This means that even for customers who are currently Low Risk, CRMs will need to maintain sufficient contact with the customer to ensure that they have this knowledge and understanding.

The amount of time and effort CRMs and case teams spend on gaining this understanding must be guided by resourcing to risk principles but the minimum contact with any customer should be an annual meeting to cover issues such as:

  • review of tax/duty payment profile and trends;
  • discussion of major events and issues arising since the last meeting, together with projections for the future;
  • progress on open issues;
  • discussion of any agreed activity over the next twelve months;
  • any new or emerging risks to encourage self-compliance.
     

Where there is a high level of inherent risk, CRMs will need to have more in-depth evidence and knowledge, derived from more structured evaluation of how the customer manages tax compliance risk. If the customer has a low level of inherent risk then it may be sufficient for the CRM to simply base the assessment on their periodic discussions with the customer and ongoing monitoring activity.

It is not possible to define exactly what evidence CRMs will need to support their evaluation of risk as this will vary from customer to customer. However, the following provides some examples for each of the BRR criteria.

 

Low Risk Criteria

 

1. Governance

 

1.1 The customer is open with HMRC in real time about how they manage tax compliance risk across all relevant taxes and duties.

Evidence might include:

  • Examples of how the customer has responded to reasonable requests from the CRM to discuss tax compliance risk management at an appropriate level;
  • Examples of the customer volunteering information in real time about significant commercial transactions or complex issues which might affect tax compliance risk.
     
1.2 The customer raises significant compliance issues, uncertainties and/or irregularities with HMRC in real time.

Evidence might include:

Where such issues have arisen evidence of positive behaviour might include:

  • The customer has notified the CRM as soon as they have discovered a significant irregularity and has shown a commitment to preventing the problem reoccurring;
  • They have discussed areas of uncertainty as they have arisen;
  • They have pointed out an interpretation of the law which they are relying on but which they suspect HMRC will disagree with.
  • Where there are no examples of the customer raising significant issues in real time (or failing to do so), the CRM will need to have sufficient up-to-date knowledge of the business to decide whether the lack of issues is simply because there have been none or because the customer has not drawn attention to them in real-time.
     
1.3 The customer promptly provides full, accurate and helpful answers to HMRC queries.

Evidence might include:

Examples of:

  • Responses the customer has given to reasonable and well-articulated requests from the CRM;
  • The customer using different ways of helping the CRM understand an issue rather than just answering questions in writing;
  • The customer providing access to relevant business personnel to discuss issues;
  • The CRM has not had to send repeated reminders or ask supplementary questions to obtain a full response (assuming the initial request was clear).
     
1.4 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.

Evidence might include:

Examples of the customer making well-reasoned judgments on new or highly complex tax questions;

  • A tax department which is resourced and skilled at an appropriate level to effectively manage the inherent tax compliance risks in the business;
  • Examples of where the customer has sought HMRC or other professional advice on areas of uncertainty, including ensuring their systems and processes are fit for purpose;
  • Examples of the customer actively contributing to CRM action plans and providing reasonable resources to ensure these action plans are met.
     
1.5 The customer has clear accountabilities up to and including the Board for the management of tax compliance risk and tax planning.

Evidence might include:

  • Documentation setting out the key roles and responsibilities for tax in the organisation;
  • Documentation setting out the key tax governance processes the customer has in place;
  • Examples of how these governance processes have worked in relation to significant business events or tax decisions.

 

 

2. Delivery

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2.1 The customer has a history of accurate and timely returns, declarations, claims and payments across all relevant taxes and duties.

Evidence might include:

  • The customer’s return/payment history for all the relevant taxes and duties;
  • The results of any discussions or interventions related to errors or omissions;
  • The results of previous intervention activity.
     
2.2 The customer has appropriate tax accounting arrangements in place.

Evidence might include:

  • Results of intervention activity;
  • If a customer qualifies under the Senior Accounting Officer measure and they have a fully open and transparent relationship with HMRC the latest or forthcoming SAO certificate may be accepted as the main evidence for this criterion. If the certificate states that tax accounting arrangements have been appropriate or that any shortcomings have already been resolved then this can be taken as evidence that the customer meets this criterion;
  • Where the customer does not qualify under SAO or the relationship is not fully open and transparent, evidence might include:
    • A high-level description of the key processes the customer has in place to manage significant tax compliance risks;
    • Examples of how these processes have worked in practice in relation to significant business events or key risks;
    • Examples where the customer has identified new tax compliance risks as a result of their monitoring and has put measures in place to mitigate the risks.
  • Further information on how CRMs should approach their assessment of customer’s tax accounting arrangements is provided in the section ‘Delivery : assessing tax accounting arrangements’.

 

 

 

3. Tax Strategy

An important consideration is whether the customer has made any formal statements to HMRC which indicate their approach to the criteria described below. Where they have made such statements in the context of an open and transparent relationship, CRMs should generally accept them at face value unless, exceptionally, they have reasonable cause to doubt them. If a customer has previously engaged in tax avoidance, the lapsed time since this last occurred will not be evidence on its own of the customer’s current attitude to tax avoidance. CRMs should consider this in the light of other evidence such as a published tax strategy or clear statements from the customer that they no longer intend to get involved in tax planning which does not support genuine commercial activity.
 

3.1 The customer is not involved in tax planning other than that which supports genuine commercial activity.

Evidence might include:

  • In the absence of positive evidence to the contrary, the CRM will need to demonstrate sufficient knowledge and understanding of the business to make an informed judgment on whether or not the customer meets this criterion.
  • Tax planning under different regimes must be considered (e.g. the use of arrangements to enable employees to avoid or reduce income tax and NIC liabilities). CRMs should also consider whether there is any evidence that the customer has taken unfair advantage of any reliefs and incentives.
     
3.2 The customer does not structure transactions in a way which gives a tax result contrary to the intentions of Parliament.

Evidence might include:

  • In the absence of positive evidence to the contrary, the CRM will need to demonstrate sufficient knowledge and understanding of the business to make an informed judgment on whether or not the customer meets this criterion.
     

Evidence might include:

  • Examples of where the customer has discussed transactions and areas of uncertainty in real time (recognising that the concept of real time working is fairly recent).
  • In the absence of positive evidence to the contrary, the CRM will need to demonstrate sufficient knowledge and understanding of the business to make an informed judgment on whether or not the customer meets this criterion.
     
3.4 The customer is not involved with illicit trades.

Evidence might include:

  • In the absence of positive evidence to the contrary, the CRM will need to demonstrate sufficient knowledge and understanding of the business to make an informed judgment on whether or not the customer meets this criterion.