Many corporates now have a lower appetite for tax risk, and taxpayers are concerned about HMRC's increasingly interventionist approach.
The UK tax landscape is characterised by heightened tax regulatory obligations on corporates, with more than 100 measures introduced by the government since 2010/11 to regulate and tackle tax non-compliance. Some of these measures were summarised in the briefing paper Tax avoidance and tax evasion, which was published by the House of Commons Library on 9 May 2019.
This climate clearly presents a number of evolving challenges for taxpayers. Against this backdrop, the tax advice and controversy team at Bryan Cave Leighton Paisner conducted a survey of senior tax professionals in a wide range of industries, including real estate, financial services, infrastructure and technology, about the impact of HMRC’s continued focus on tax non-compliance on their businesses. The feedback from respondents has provided a fascinating insight into the issues that UK corporates face in relation to tax risk.
The key findings are set out below:
Many corporates now have a lower appetite for tax risk. 57% of respondents said that the most important factor driving the change in their approach was the risk of increased scrutiny from HMRC, with 38% attributing their change in appetite to concerns over reputational risk.
Taxpayers are concerned about the increasingly interventionist approach of HMRC, with 67% of respondents saying that the increase in tax regulation has had a significant impact on their businesses. The practical consequences are that corporate taxpayers are allocating more resource and incurring more expenditure in dealing with tax risk and disputes, including through seeking professional advice.
Delay on the part of HMRC is a major issue facing taxpayers involved in tax disputes, with 67% of respondents saying they have experienced delays in resolving disputes with HMRC. Respondents believe that such delays have been caused by a range of factors, including: lack of resource at HMRC; change in personnel; and a failure on the part of HMRC to understand the facts in dispute. However, in many cases HMRC has not provided any explanation for the delay. This was identified as a major problem in the House of Lords Economic Affairs Committee Report, The powers of HMRC: treating taxpayers fairly, and formed one of the bases on which the committee concluded that the balance of power had tipped too far in favour of HMRC. In the current climate, it is not clear how or when these delays will start to reduce.
Where applicable, we asked respondents to evaluate their relationships with their CCMs. While the relationship between large corporates and their CCMs is generally positive, as CCMs generally facilitate an open chain of communication, a common theme is that CCMs have their limitations as they do not have the authority to make decisions.
50% of respondents said that the number of enquiries raised by HMRC has increased over the past few years. Such enquiries relate to a wide range of taxes, particularly corporation tax and VAT. Going forwards, the number of enquiries into transfer pricing and diverted profits tax is expected to rise.
Given concerns over reputational risk, and the inherent uncertainty involved in litigating, 57% of respondents said that they will always seek resolution by agreement with HMRC. 33% of respondents said that they would only litigate in exceptional circumstances.
Achieving settlements with HMRC is likely to remain difficult given the government’s target for collecting an additional £2bn by 2023/24. In practice, 39% of respondents have found the main challenge to achieving resolution is that HMRC becomes entrenched in its technical position. The main obstacle for 27% of respondents was that HMRC did not understand the factual or commercial background to the transactions in dispute.
Overall, two of the key themes which emerge from the survey are that relationships between corporates and HMRC could be improved were HMRC to engage more collaboratively and at an earlier stage in an enquiry, and if delays in resolution were minimised, so as to allow certainty and finality for taxpayers.
Many corporates now have a lower appetite for tax risk, and taxpayers are concerned about HMRC's increasingly interventionist approach.
The UK tax landscape is characterised by heightened tax regulatory obligations on corporates, with more than 100 measures introduced by the government since 2010/11 to regulate and tackle tax non-compliance. Some of these measures were summarised in the briefing paper Tax avoidance and tax evasion, which was published by the House of Commons Library on 9 May 2019.
This climate clearly presents a number of evolving challenges for taxpayers. Against this backdrop, the tax advice and controversy team at Bryan Cave Leighton Paisner conducted a survey of senior tax professionals in a wide range of industries, including real estate, financial services, infrastructure and technology, about the impact of HMRC’s continued focus on tax non-compliance on their businesses. The feedback from respondents has provided a fascinating insight into the issues that UK corporates face in relation to tax risk.
The key findings are set out below:
Many corporates now have a lower appetite for tax risk. 57% of respondents said that the most important factor driving the change in their approach was the risk of increased scrutiny from HMRC, with 38% attributing their change in appetite to concerns over reputational risk.
Taxpayers are concerned about the increasingly interventionist approach of HMRC, with 67% of respondents saying that the increase in tax regulation has had a significant impact on their businesses. The practical consequences are that corporate taxpayers are allocating more resource and incurring more expenditure in dealing with tax risk and disputes, including through seeking professional advice.
Delay on the part of HMRC is a major issue facing taxpayers involved in tax disputes, with 67% of respondents saying they have experienced delays in resolving disputes with HMRC. Respondents believe that such delays have been caused by a range of factors, including: lack of resource at HMRC; change in personnel; and a failure on the part of HMRC to understand the facts in dispute. However, in many cases HMRC has not provided any explanation for the delay. This was identified as a major problem in the House of Lords Economic Affairs Committee Report, The powers of HMRC: treating taxpayers fairly, and formed one of the bases on which the committee concluded that the balance of power had tipped too far in favour of HMRC. In the current climate, it is not clear how or when these delays will start to reduce.
Where applicable, we asked respondents to evaluate their relationships with their CCMs. While the relationship between large corporates and their CCMs is generally positive, as CCMs generally facilitate an open chain of communication, a common theme is that CCMs have their limitations as they do not have the authority to make decisions.
50% of respondents said that the number of enquiries raised by HMRC has increased over the past few years. Such enquiries relate to a wide range of taxes, particularly corporation tax and VAT. Going forwards, the number of enquiries into transfer pricing and diverted profits tax is expected to rise.
Given concerns over reputational risk, and the inherent uncertainty involved in litigating, 57% of respondents said that they will always seek resolution by agreement with HMRC. 33% of respondents said that they would only litigate in exceptional circumstances.
Achieving settlements with HMRC is likely to remain difficult given the government’s target for collecting an additional £2bn by 2023/24. In practice, 39% of respondents have found the main challenge to achieving resolution is that HMRC becomes entrenched in its technical position. The main obstacle for 27% of respondents was that HMRC did not understand the factual or commercial background to the transactions in dispute.
Overall, two of the key themes which emerge from the survey are that relationships between corporates and HMRC could be improved were HMRC to engage more collaboratively and at an earlier stage in an enquiry, and if delays in resolution were minimised, so as to allow certainty and finality for taxpayers.
