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HMRC internal manual

Tax Compliance Risk Management

The Business Risk Review (BRR+): Business Risk Review (BRR+) Assessment indicators: Evidence to support the BRR+

CCMs 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, CCMs will need to maintain sufficient contact with the customer to ensure that they have this knowledge and understanding. 

The amount of time and effort CCMs and case teams spend on gaining this understanding must be guided by resourcing to risk principles. The CCM will meet periodically with the customer in a 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

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. Systems and Delivery

1.1   Systems and Processes: The customer employs sufficient resource to deliver timely and accurate returns, declarations, payments and claims, including accounting systems and processes that are suitable for the size and complexity of the business. 

Evidence might include: 

  • appropriate financial investment in systems and processes
  • no evidence of significant basic and/or repeated errors

1.2    Sufficiently Resourced Tax Team: The customer employs sufficient resource to deliver timely and accurate returns, declarations, payments and claims, including sufficiently skilled resource in the Finance/Tax teams. 

Evidence might include: 

  • a tax department which is resourced and skilled at an appropriate level to meet their obligations
  • the results of any discussions or interventions related to errors or omissions
  • use of external advisors to bolster own expertise when necessary

1.3    All returns and payments are made on time. 

Evidence might include: 

  • HMRC interventions have not identified any late returns or payments
  • the customer’s return/payment history for all the relevant taxes and duties 
  • CT: online returns are made on time and include full XBRL tagging 
  • ED: monthly employee declarations are made on time via RTI reporting 
  • Customs and Iinternational Trade: Declarations submitted via CHIEF/CDS do not show inaccuracies or inconsistencies 
  • VAT: No surcharge liability notice (including extensions) issued, meaning returns and payments have been made on time

1.4    HMRC interventions have not identified significant errors. 

Evidence might include: 

  • the results of previous intervention activity 

1.5    The customer maintains a tax risk and controls matrix and shares this on request from HMRC. 

Evidence might include: 

  • customer has shared the tax risk and controls matrix with the CCM. The document contains both the areas the customer has identified potential for error and the steps in place to mitigate the risk of error
  • updates being made to the tax risk and controls matrix when the customer identifies new potential for error

1.6    The customer maintains documented tax policies and procedures and shares these on request from HMRC. 

Evidence might include: 

  • documented tax policies and procedures that are available for HMRC on request  

1.7    The customer undertakes assurance checks and testing of its policies and procedures on a regular/timetabled basis. 

Evidence might include: 

  • counter-signatory evidence that ‘second pair of eyes checks’ have been carried out 
  • Error Correction Notice (ENC) submitted where assurance checks reveal errors which need to be rectified 

1.8    Where key fiscal areas are outsourced, reasonable steps are taken to ensure the provider is suitably competent, qualified or controlled in order that transactions which impact on tax are properly accounted for.   

Evidence might include: 

  • letters of engagement and/or contracts and reports, where it is not obvious  
  1. Internal Governance 

2.1 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
  • documented conversation with a senior figure such as the Senior Accounting Officer or Finance Director  

2.2 The customer has appropriate tax accounting arrangements so as to enable accurate tax reporting.  

Evidence might include: 

  • results of intervention activity 
  • if a customer qualifies under the Senior Accounting Officer (SAO) 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, 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

2.3 The customer keeps HMRC informed of how the business is structured and where different parts of the business are located.  

Evidence might include: 

  • a complete worldwide group structure in standard notation format
  • a UK-focused group structure demonstrating all of the subsidiaries and any overseas entities that the UK group transacts with or deals with and how they fit into the worldwide structure (see TCRM3343)
  • the customer offers HMRC opportunities to see different parts of the business in action 

2.4 The customer has fulfilled its filing, notification, due diligence, reporting and/or publication obligations regarding Senior Accounting Officer legislation, Country by Country Reporting, Tax strategy publication and Automatic Exchange of Information under the Common Reporting Standard or FATCA (if appropriate).  

Evidence might include: 

  • filing, notification, due diligence, reporting and/or publication obligations have been met
  • Automatic Exchange of Information – there has been engagement with the customer regarding Automatic Exchange of Information which has provided assurance that due diligence and reporting obligations have been well managed and systems can be relied upon to make accurate reporting under the Common Reporting Standard or FATCA.  If areas of concern have been highlighted, such as the imposition of a penalty or other weaknesses or inaccuracies, and have been fully explored and any shortcomings addressed, then this can be taken as evidence that the customer meets this criterion.

2.5 The customer appreciates its potential liability under the Corporate Criminal Offence legislation and steps have been taken to profile and manage the risk of failing to prevent the facilitation of tax evasion.  

Evidence might include: 

  • documented conversation with the customer in which they confirm they have carried out a proportionate risk assessment for the facilitation of Tax Evasion, have carried out due diligence, have clear policies and procedures in place to train and communicate with staff and that they have (and can demonstrate) top level commitment to prevent potential liability under CCO legislation. All of which is regularly updated where appropriate
  • public statements and published strategies on CCO

2.6 Any significant uncertainties or irregularities identified by the customer are communicated to HMRC promptly.  

Evidence might include: 

  • the customer has notified the CCM as soon as they have discovered a significant uncertainty or irregularity and has shown a commitment to preventing the problem reoccurring
  • where there are no examples of the customer raising significant uncertainties or irregularities promptly (or failing to do so), the CCM will need to have sufficient up-to-date knowledge of the business to decide whether the lack of uncertainties and/or irregularities is simply because there have been none or because the customer has not drawn attention to them promptly 

2.7 Transactions or issues with significant tax implications are discussed in real time and communications with HMRC are managed collaboratively.  

Evidence might include: 

  • the customer has discussed significant areas of uncertainty as they have arisen, not after a return is submitted
  • the customer pointed out an interpretation of the law which they are relying on but which they suspect HMRC will disagree with
  • meeting notes or other recorded communication demonstrating the customer collaborating with HMRC in order to resolve the transaction and/or issue in question
  • the customer will approach HMRC to discuss areas of uncertainty, for example, where they believe the law should be interpreted in a way which differs from HMRC policy or which HMRC might wish to question 

2.8 Prompt, accurate and helpful answers are provided in response to HMRC’s queries and requests for information. 

Evidence might include: 

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

3.1 The customer maintains an open and transparent relationship with HMRC. 

Evidence might include: 

  • examples of how the customer has responded to reasonable requests from the CCM to discuss tax compliance risk management at an appropriate level
  • the customer provides regular briefings on business performance and developments  
  • the customer provides access to personnel beyond the tax team when requested 
  • examples of the customer volunteering information about significant commercial transactions or complex issues which might affect tax compliance risk

3.2 The customer has a documented tax strategy that is used to steer all tax considerations.  

Evidence might include: 

  • the customer demonstrates how the tax strategy applies in practice and evidences how it is monitored

3.3 The tax strategy is regularly reviewed and updated when appropriate. 

Evidence might include: 

  •  documented reviews and updates to the customer’s tax strategy  

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

Evidence might include: 

  • the customer demonstrates how relevant processes and procedures work, what quality assurance checks are carried out and how concerns or failings are addressed and rectified

3.5 The customer is not involved in tax planning other than that which supports genuine commercial activity and they fully disclose the facts and any legal uncertainty of relevant transactions. 

Evidence might include: 

  • in the absence of positive evidence to the contrary, the CCM 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). CCMs should also consider whether there is any evidence that the customer has taken unfair advantage of any reliefs and incentives
  • examples of where the customer has discussed transactions and areas of uncertainty in real time

3.6 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 CCM 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

3.7 The customer is not directly involved with illicit trades and is active in mitigating illicit trades within their supply chain. 

Evidence might include: 

  • in the absence of positive evidence to the contrary, the CCM 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
  • documentation recording the actions taken by the customer to mitigate the risk of illicit trades within their supply chain

3.8 The customer has not incurred an inaccuracy penalty, including any penalties that may have been suspended. 

Evidence might include: 

  • the results of previous intervention activity