KPMG's Senior Accounting Officer (SAO) team brings you regular insights, updates and opinions on SAO Regulations.
KPMG's Senior Accounting Officer (SAO) team brings you regular insights.
The Publication of Tax Strategies
HMRC has now issued draft legislation in relation to the requirement for businesses to publish tax strategies that will become effective for accounting periods beginning after the 2016 Finance Bill receives Royal Assent. This follows the recent Large Business Compliance Consultation.
Broadly, the legislation will create the following requirements:
1) The UK entities will be required to publish their tax strategy on the internet. This has been generally interpreted as creating a requirement that the strategy should be put on the website but in recent discussions HMRC have suggested that this may include Companies House.
2) The draft legislation envisages that in addition to groups that are already within the SAO regime and other organisations of a comparable size that are outside that regime because they are not UK incorporated companies (‘bodies corporate’ and partnerships), UK subsidiaries of MNEs will be caught irrespective of their size. The definition of MNE in this respect is the same as that which applies for the purposes of Country by Country reporting. However, HMRC now acknowledges that this would extend the requirement to a significant number of small subsidiaries of overseas owned groups that it was not intended to target and that this would be extremely difficult for them to police. It therefore remains to be seen whether this aspect of the legislation remains intact.
3) The requirement that one board member should take responsibility (with the prospect of personal penalties for any failure) which was in the original Consultation document has been removed.
4) It is proposed that the strategy must include the following 4 areas:
As expected the proposed reference to a target effective rate of tax has been removed.
5) The taxes to be covered are those covered by the SAO regime together with NIC and Diverted Profits Tax.
6) The strategy must be published on the internet before the end of each financial year. Responsibility for doing so will usually rest with one group company but it appears that there will be circumstances where this will be extended to others. We are seeking confirmation in this respect.
7) The corporate penalties for a failure to meet the requirements of the legislation are £7.5k for the initial offence, a further £7.5k if it has not been rectified within 6 months and £7.5k per month thereafter.
HMRC has invited comment before 3 February 2015 but we understand that they consider it unlikely that this will lead to any significant changes insofar as the requirements will apply to groups that are within the SAO regime. We also understand that HMRC will issue detailed guidance in February and this will hopefully go some way towards answering some of the questions raised by the draft e.g. what are HMRC’s expectations concerning the publication of the organisation’s ‘risk appetite’. However, it is clear already that such groups will be obliged to publish their strategy and that they will need to be able to demonstrate that statements therein are supported by what is happening in practice.
A key consideration for UK companies with overseas parents will be the interaction of the requirements of HMRC with any global tax strategy that is currently in place, specifically whether it is this strategy or a UK specific version that should be published. Such groups will therefore need to initiate internal discussions to arrive at the most appropriate approach.
We will of course keep you informed of developments but if there is anything that you wish to discuss in the meantime, please let us know.
Autumn Statement 2015
Given the understandable media focus upon the more high profile aspects of the Autumn Statement, it is perhaps not surprising that little attention has been paid to a statement tucked away at the bottom of page 123. This confirms that the Government will legislate to introduce the three measures intended to ‘improve large business compliance’ that were announced in the Summer Budget:
1) A new requirement that large businesses will publish their tax strategies as they relate to or affect UK taxation;
2) A special measures regime to tackle businesses that persistently engage in aggressive tax planning; and
3) A framework for co-operative compliance (Finance Bill 2016)’
As indicated previously it would appear that HMRC has listened to representations made in the course of the consultation process, but the extent to which this will result in a change in the original proposals remains to be seen.
Update on Large Business tax Compliance Consultation
Representatives of the central HMRC team that is responsible for the Consultation Document recently gave a presentation to a number of KPMG clients. The key points to emerge were as follows:
1) In response to representations made already, it is unlikely that HMRC will pursue a number of its original proposals:
These developments are good news. Although, but to strike a note of caution, there were a number of references during the session to elements of the proposals that reflect ministerial decisions and so presumably any changes will also require ministerial approval.
2) A number of concerns were expressed by those present:
HMRC acknowledged that, perhaps not surprisingly, the same concerns had been raised at other, similar sessions.
Views from HMRC's central SAO team
At a recent meeting HMRC’s central SAO team expressed the view that the introduction of the SAO regime has been a success as it is achieving its objective of raising the profile of tax at board level. It was acknowledged that this has been helped by the unprecedented profile of tax governance in the media. The introduction of other initiatives, such as the current consultation on the publication of tax strategies and the introduction of a voluntary Code of Practice, have also helped.
However, it was acknowledged that there remain inconsistencies in the approaches of individual CRMs. There needs to be more focus on the key requirement of the legislation, that SAOs should take reasonable steps to ensure that there are appropriate tax accounting arrangements, rather than the relatively minor administrative issues that have led to the majority of penalties to date. Examples of such administrative issues include; failure to submit certificates for dormant companies and the submission of soft copies rather than the original signed documents. A review is therefore underway to decide upon the extent to which some of these requirements can be relaxed.
The way that HMRC administers the SAO regime may be relaxed, which is clearly welcome. Although it is important to note that this does not signify a return to the ‘light touch’ that was applied in its early years. Instead, SAOs can expect an increased focus on the ‘main duty’ requirement of the legislation. This includes the effectiveness of monitoring activities, with questions from CRMs concerning their primary steps, to ensure that appropriate tax accounting arrangements are in place and to decide the basis upon which the required certificate should be submitted.
Know Your Customer (KYC) Meetings
After a period of relatively limited activity, HM Revenue & Customs is in the process of carrying out Know Your Customer (KYC) meetings with larger employers, many of which will be in the Senior Accounting Officer regime. KYC meetings are an exercise designed to enable HMRC to find out more about the employment tax processes and controls within organisations, together with the employee reward strategies, and continues the risk based approach adopted under the SAO regime. The introduction of these meetings follows HMRC’s agenda to employing several individuals who have previously worked in industry or an accounting practice, in order to “up skill” their compliance officers.
Although on the surface these meetings are designed to enable HMRC to gain further information on their 'customers', we know from our clients' experiences that there is a strong focus on the processes and controls in place, in terms of employment tax compliance. The approach and depth into which the meetings have gone has varied from one client to another, however, we are noticing that for those within the SAO regime, HMRC is asking questions around the validity of SAO processes and the level of internal checks to evidence these.
This again highlights the need for organisations to be able to articulate the governance and control framework within which tax is managed, particularly in areas such as employment taxes, which often involve the interaction of different parts of the business. In view of the prevalence of KYC meetings, it is therefore recommended that reviews are carried out on any areas of uncertainty.