Payroll
Business risk reviews
Peter Minchinton, employment taxes senior manager for PSTAX , explains howHMRC are progressing these
H er Majesty’s Revenue & Customs (HMRC) has recently updated its approach to working with large business customers, including the public sector, to manage their tax compliance risk. The key elements of this approach are: ● to build and maintain effective relationships with all customers, promoting delivery of the right tax at the right time ● to classify customers so that resources can be deployed appropriately ● to understand why and in what respects a customer is not low risk so that HMRC and the customer can target resources effectively. HMRC has confirmed that it wishes to provide greater clarity and consistency for customers around the business risk reviews (BRRs) process, through greater collaborative working and by developing clearer guidelines and a standardised approach. HMRC determines a customer’s overall level of tax compliance risk by direct reference to the sector in which the organisation operates; in terms of, for example, size, complexity, and the degree and pace of change they experience. For low risk customers generally, HMRC has advised that it still expects BRRs for large businesses to be undertaken every three years, as previously. Whether this is achievable for public sector organisations remains to be seen, as HMRC’s Public Bodies Group continues to have resourcing issues. For customers awarded moderate, moderate-high and high-risk categories, HMRC suggests that BRRs will usually be carried out on an annual basis. Again, whether this would be the case in the public sector is unclear, but the prospect of more frequent and in-depth reviews should provide incentive enough to address the relevant issues. HMRC will consider the following:
● Systems and delivery – For example, does the customer deploy sufficient resources to system design, build and maintenance 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? ● Internal governance – Does the customer have clear accountabilities up to and including the board for the management of tax compliance risk and tax planning, and have appropriate tax accounting arrangements so as to enable accurate tax reporting? ● Approach to tax compliance – The customer will maintain an open and transparent relationship with HMRC, have a documented tax strategy that is used to steer all tax considerations and regularly review and update their tax strategy when appropriate. Clients have kindly shared their experiences with us and provided copies of the findings. The following summaries specific areas covered during BRR discussions. ● What is the level of inherent risk? ❍ Complexity – What is the potential for risk in the size, scope and depth of business or tax interests? HMRC focus on how well-organised the payroll functions are and how complex the tax and National Insurance contributions (NICs) procedures are. ❍ Boundary – What is the level of complexity of international structures, financing and connected party issues? For most public sector bodies, who are funded by UK government, council tax, etc, there would be little or no risk in this area. ❍ Change – What is the degree and pace of change affecting the business and its tax obligations? ● How does the customer’s behaviour
mitigate the inherent risk? ❍ Governance – Customer’s management of risk and accountabilities, openness and cooperation with HMRC. All organisations are expected to maintain an open and transparent relationship with HMRC. Where errors are discovered by the organisation, HMRC expects them to be addressed, without recurrence and to seek HMRC advice were necessary. ❍ Delivery – Customer’s ability to deliver right tax at right time through processes, systems and skills. HMRC expects all returns to be made on time and that the organisation will have the appropriate level of skill with the various finance teams to achieve this. ❍ Tax strategy – Customer’s use of tax planning which does not support genuine commercial activity; tax planning, or structured transactions in a way which gives a tax result contrary to the intentions of Parliament. ● Do the customer’s tax declarations reflect what we know about the business and sector? ❍ Contribution – To what extent are there unexplained tax performance or payment variations, trends or issues? Following the review and the report, an action plan will be agreed at which point HMRC will confirm when the next BRR should be expected. Clearly these are significant changes across the large business community generally and public sector bodies are very much part of that. We are aware that HMRC has been undertaking an increasing number of risk reviews and we can only expect this trend to continue. As with any compliance process run by HMRC, it is advisable to pre-empt such reviews well in advance by reviewing internal processes and policies and considering the behaviours that underpin these. This could involve working closely with advisers and ensuring that there is the right culture and level of ‘buy-in’ within the organisation to help keep the risk rating low. n
...BRRs will usually be carried out on an annual basis
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| Professional in Payroll, Pensions and Reward |
Issue 60 | May 2020
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