The view from HMRC: Working with CRMs

Our approach to all of our business customers, grounded in our customer-centric strategy, is to ensure they each pay the tax they owe and receive the reliefs to which they are entitled, enabling them to get on with what really matters to them – running and growing the business. We aim to do this by minimising compliance costs and uncertainty and having early and open dialogue where there are issues to resolve.

Our interventions are based on customer needs and the risks they pose, and aim to positively influence their behaviours. Our in-depth research has enabled us to segment our customers based on their responsibilities and behaviours, and tailor our responses accordingly. For example, our different models for dealing with SMEs and large businesses are based on the different needs of (and risks posed by) these two customer groups to enable us to administer the tax system effectively and fairly for all.

Large businesses play a key role in the UK economy and the 10,400 businesses managed by HMRC’s large business teams are responsible for around 60% of UK tax receipts. The basis for the way we deal with them was set out in the 2006 Review of Links with Large Business, which set out proposals to provide greater certainty to business through an efficient risk-based approach to dealing with tax matters, with speedy resolution of issues and clarity through effective engagement.

The customer relationship model is HMRC’s strategy for delivering the Review of Links proposals for the largest businesses, whether low risk or not. Customer Relationship Managers (CRMs) are generally allocated when a business’s turnover exceeds £200m, although other criteria are used: see www.hmrc.gov.uk/large-businesses/crm.htm#1 for more details. Currently around 2,000 large businesses have CRMs allocated to them.

The role of a CRM is to develop a deep understanding of a business and its associated tax issues and risks, responding either directly or by marshalling specialist advice. By focusing resources on the highest risks so that priority issues are resolved more quickly, CRMs provide certainty and speedy resolution of issues. They also offer a timely process for tax clearances which provide a greater level of certainty for large businesses; prepare integrated risk assessments which enable a more consistent cross-tax response; and keep businesses updated on progress with issues.

The CRM approach benefits both customers and HMRC and it is an essential part of delivering HMRC’s objective of developing open and transparent relationships with large taxpayers wherever possible.

How can businesses and their CRMs work together most effectively?

CRMs and their teams of tax specialists undertake regular risk reviews of each business. These comprise an overview of risk across the different tax regimes HMRC administers. A company’s risk status will depend on its inherent risks (arising from size and complexity) and how well those risks are managed.

A CRM’s relationship with a business will depend on whether we see it as low risk or non-low risk. With non-low risk businesses, CRMs proactively manage the relationship in order to minimise non-compliance, so these businesses are much more likely to see HMRC-initiated interventions. In general, we trust businesses rated low risk to get things right, so we review their tax returns less often and generally review their risk status every three years. But we also ensure sufficient contact to keep our knowledge up-to-date, including as a minimum an annual meeting. Tax avoidance is incompatible with low-risk status and all businesses can expect a detailed examination where tax avoidance is reported or suspected.

Regardless of whether a business is viewed as low or non-low risk, there are key steps large businesses can take to help them work most effectively with their CRMs. This is the advice that HMRC would give to tax departments: 

1. Understand what drives CRM behaviour

Establishing a relationship that is trust-based and transparent is a two-way process. As well as CRMs understanding the businesses they look after, it’s important that tax directors and their teams have an insight into how CRMs operate. Four factors drive CRM behaviour:

• Our Large Business Strategy: our model of a resource-intensive, relationship-managed service which prioritises the most significant risks to deliver the most cost-effective way of getting the right tax agreed early. Full details of HMRC’s large business strategy can be found at www.hmrc.gov.uk/large-businesses/strategy.htm.
• Resourcing to risk: we will invest more resources in tackling the biggest risks to revenues.
• Speed of resolution: we expect CRMs to resolve most issues within a maximum of 18 months – this helps avoid lengthy disputes and reduces uncertainty for businesses.
• Consistency and fairness: businesses may not understand why HMRC is holding the line on a particular issue where not much money is at stake but HMRC must consistently apply core tax principles across the board. This requires us to treat all taxpayers even-handedly in line with tax law and our litigation and settlement strategy.

2. Understand how HMRC works

• How CRMs and their teams work together: CRMs work with teams of tax professionals with in-depth knowledge of different tax regimes (eg, corporation tax, VAT, employment taxes). We also group businesses by sectors so that we have an accurate picture of sectoral issues and apply rules consistently.
• When and why issues get referred to specialists: This could be for a number of reasons, including where issues may set a precedent, or are strategically relevant, for example because they potentially affect many customers. 
• Transparency of governance: Public confidence in HMRC’s processes is highly important. In February 2012 HMRC announced new governance arrangements for deciding how to resolve significant tax disputes, to provide greater transparency, scrutiny and accountability. The new arrangements address the issues highlighted by the Public Accounts Committee in its report in December 2011, in a way that is workable and cost-effective, without undermining the core tax principles of taxpayer confidentiality and effectiveness of collection. For more information see: nds.coi.gov.uk/Press-Releases/Boosting-Transparency-around-Tax-Disputes-67634.aspx. HMRC’s litigation and settlement strategy sets out the principles within which HMRC resolves disputes with all its customers about taxes, duties, credits or related interest and penalties. See www.hmrc.gov.uk/practitioners/lss-guidance-final.pdf for more details.

3. Help the CRM to understand the business

Large businesses are extremely complex: each is structured differently and has its own distinct corporate culture. The more CRMs understand about a business, the closer and more effectively they will be able to work with it. HMRC has a statutory duty of taxpayer confidentiality which means businesses can trust CRMs with information that is commercially sensitive. So tax directors and their teams should tell us about:

• their business structure;
• their business culture: including overall attitude to corporate risk as well as tax risk;
• the tax team: how it is structured, who is accountable for which area of business tax; levels of authority; and how the tax team relates to different companies within the group; and
• how their business manages tax risks: including the relationship between the tax director and the board; governance of tax decisions; and the steps the senior accounting officer takes each year to ensure the business has appropriate tax accounting arrangements. 

4. Help the CRM to understand what drives the behaviour of the business

The more CRMs understand about the environment businesses operate in, including the constraints, pressures and tensions they face, the more insight they have into why certain decisions have been made and the more help they can provide with resolving issues. It also helps them develop a clearer risk assessment of the business. So tax directors and their teams should tell us about:

• their tax strategy – even when this involves an aggressive approach to reducing their tax, such as the use of tax planning schemes and marketed avoidance schemes; and
• their commercial and economic environment – the more the CRM understands about the business context a company operates in, the easier it will be to appreciate why, for example, the company is structured in a certain way and why it has made certain decisions about its tax affairs.

5. Working together

CRMs aim to develop a robust relationship with large businesses based on mutual trust and transparency. Those businesses that are open and transparent with us will tend to spend much less time with us than those that are not. So we ask that tax directors and their teams:

• Keep in regular touch and work with us in real time: It’s usually easier and more cost-effective to work through any tax issues as they arise, rather than reviewing returns some time after the event – this is our preferred way of working with all large businesses. In an open and transparent relationship, we would expect a business to discuss in real time any significant issues where there is a material doubt, or likely to be a difference of opinion, about the tax treatment.
• Think about the role of advisers: While we believe that accountants and legal advisers have an important role to play, they should not replace the tax director and team in dealings with the CRM. Similarly CRMs should be used for issues that are particularly complex or significant; day-to-day issues should be handled in-house or by an agent.
• Use the clearance procedure effectively: Where businesses require clarity on certain tax issues or transactions, CRMs can help obtain clearance or a view from HMRC, but strict conditions apply. There must be genuine uncertainty, and businesses must be clear about their proposed course of action: we will not consider a range of options.
• Plan significant pieces of work: To offer the certainty and speedy resolution that large businesses require, it’s important that tax directors and their teams work with CRMs to form a plan towards reaching a settlement or moving swiftly to litigation. The planning should involve realistic but stretching deadlines.

6. Shared objectives

In order for CRMs to decide on an accurate risk status for a business, it’s important that tax departments are fully involved in HMRC’s risk review process. This includes discussing and agreeing the business’s objectives around risk status. These could include:

• where the business wants to be by the year end;
• what the business needs to do to get there (for example, discussing tax planning opportunities with their CRM in real time or not taking up aggressive tax planning schemes);
• the evidence required (for example, detailed audit trails).

7. When things go wrong

Despite everyone’s best efforts things can go wrong, either because an issue is taking too long to resolve or the relationship with the CRM is simply not working out. If so it’s important to be:

• open and transparent on both sides;
• able to identify underlying causes not symptoms; and
• prepared to talk more not less.

Tax directors and their teams also need to get to know their local Large Business regional office, so that if issues cannot be resolved by their CRM they can be easily escalated to the next level.

A model that works

Like all of our large business customers, HMRC is a results-driven organisation. Providing CRMs for our largest customers is resource intensive but since we introduced CRMs, our compliance results have improved significantly. What’s more, we’ve managed this while also achieving year-on-year improvements in customer satisfaction levels. All the evidence says that it’s a model that works for HMRC and works for large businesses. 

For a practitioner's view, see here.