HM Revenue and Customs (HMRC) is committed to dealing with all customers fairly and efficiently while making sure that the correct tax is paid to the Exchequer. HMRCʹs Large Business Directorate manages the largest 2,000 or so businesses using a risk based approach. This is due to their size and complexity, the tax at stake, and the consequent risk they present to the Exchequer.
This measure seeks to encourage tax transparency and compliance across all large businesses. To achieve this, we are introducing the requirement for qualifying large businesses to publish their tax strategy in relation to UK taxation.
This legislation will includes details of the tax strategies required to be published by such large business together with details of where and when publication is required and details of penalties for non‐compliance.
General description of the measure
The measure will introduce a legislative requirement for all large businesses to publish an annual tax strategy, in so far as it relates to UK activities, approved by the Business’s Executive Board.
The strategy will cover 4 areas:
- the approach of the UK group to risk management and governance arrangements in relation to UK taxation
- the attitude of the group towards tax planning (so far as affecting UK taxation)
- the level of risk in relation to UK taxation that the group is prepared to accept
- the approach of the group towards its dealings with HM Revenue and Customs (HMRC)
Non-publication of an identifiable tax strategy or incomplete content based on the 4 areas outlined above could lead to a financial penalty. This penalty will be subject to the usual HMRC appeals process.
Tax strategy means:
- a group tax strategy
- a sub-group tax strategy
- a company tax strategy or
- a partnership tax strategy.
Contents of a group tax strategy
A group tax strategy required to be published must set out:
- the approach of the UK group to risk management and governance arrangements in relation to UK taxation,
- the attitude of the group towards tax planning (so far as affecting UK taxation),
- the level of risk in relation to UK taxation that the group is prepared to accept, and the approach of the group towards its dealings with HMRC.
The company publishing information as a group tax strategy must make clear (in a way that is accessible to anyone accessing it online) that the company regards its publication as complying with the duty to publish a group tax strategy in the current financial year.
Penalty for non-compliance
The head of the UK group is liable to a penalty of £7,500 if there is a failure to publish a group tax strategy for the group that meets the legal requirements or there is a failure to comply. And is liable to a further penalty of £7,500 at the end of each subsequent month in which no such group tax strategy is published.
Who is likely to be affected
Around 2,000 largest businesses in the UK.
The publication of tax strategies will ensure greater transparency around a business’s approach to tax to HMRC, shareholders and consumers. And board level oversight of those strategies will embed tax strategy in existing corporate governance processes. Taken together this should drive behaviour change around tax planning and therefore enhance tax compliance.
Legislation will be introduced in the Finance Bill 2016 to require qualifying large businesses or qualifying groups to publish a tax strategy, in relation to UK taxation, on the internet.
The legislation sets out the content required for inclusion in the tax strategy.
The strategy will need to remain accessible until the next update to the strategy, typically on an annual basis. A penalty may be chargeable either for the non-publication of a tax strategy or if the information contained within the published strategy does not meet the requirements of the legislation.
In relation to a tax strategy required by this Schedule to be published for a UK group, UK sub-group, company or partnership, means
any of the following (so far as affecting that group, sub-group, company or partnership)
- income tax,
- corporation tax, including any amount assessable or chargeable as if it were corporation tax or treated as if it were corporation tax,
- value added tax,
- amounts for which the company is accountable under PAYE regulations,
- diverted profits tax,
- insurance premium tax,
- annual tax on enveloped dwellings,
- stamp duty land tax,
- stamp duty reserve tax,
- petroleum revenue tax;
- customs duties,
- excise duties,
- national insurance contributions.
Monitoring and evaluation
This measure will form part of HMRCs business risk review processes and implementation and impact will be measured within the internal governance and risk management processes within Large Business Directorate.
- Draft clause 65
- Draft explanatory notes clause 65
- Improving large business compliance
- Examples of public Fiscal Transparency statements
- BEPS 2015 Final Reports
- Developing a common framework for disclosing tax information