PAYROLL INSIGHT
BRR – public sector shivers
TimBridgett, employment taxes senior manager at PSTAX, reviews recent developments and discusses implications for public sector organsiations
T hose of us who have been dealing with the public sector for many years will recall the concerns that HM Revenue & Customs (HMRC) had in relation to its dealings with large businesses, which culminated in the release of the so-called ‘Varney report’ in 2006 and the ‘Varney delivery plan’ which followed in 2006. In these documents, the nature of the working relationship between large businesses and HMRC was reviewed in detail emphasising “the need to establish more common ground in what constitutes unacceptable tax planning and behaviours”. After an extensive consultation exercise, this work was followed by the introduction of HMRC’s detailed framework for assessing the tax compliance risks presented by these large businesses. Under this new approach, the volume of HMRC’s interventions in a company’s or organisation’s affairs – and the nature of the working relationship between the two – was determined by reference to a risk rating given to the company/organisation by HMRC. The lower the risk, the lower the expected level of HMRC involvement in the day-to-day workings of a business. These business risk review (BRR) ratings were confirmed as being ‘low risk’ or ‘not low risk’, with ‘low risk’ organisations benefiting from a ‘light touch’ approach by HMRC. Together with the risk-based approach came the appointment by HMRC of a customer relationship manager for the largest and most complex businesses, including many public sector bodies, to act as a single point of contact across all
taxes. From 2014, these became known as customer compliance managers, reflecting the shift in HMRC’s focus on improving overall tax compliance. ...intention that these improvements would benefit both HMRC and large business In September 2017, HMRC published a consultative document entitled Large business compliance – enhancing our risk assessment approach (http://bit. ly/326exiv). The consultation sought views on whether the efficiency and effectiveness of the BRR could be improved with the intention that these improvements would benefit both HMRC and large business. The consultation considered: the current BRR process; the aspects of risk to be assessed; the results of the BRR and how they are presented; and the outcomes and potential opportunities that existed for their use. HMRC has defined a low-risk business as one that has an open and transparent relationship with HMRC, effectively manages its own tax compliance risk, and is trusted not to engage in aggressive tax planning. HMRC trusts such a business to raise issues to discuss in real time, and to pay the right tax at the right time. It regards
all other large businesses as not low risk. There was a concern that this sub-division into two categories is too restrictive and does not accurately represent the significant differences across the large business population. Following this consultation and a pilot exercise, a new BRR process was announced by HMRC and was rolled-out to several Public Bodies Group customers, including some of our own local authority clients, with effect from 1 October 2019. So, what has changed? HMRC has advised that it wishes to provide greater clarity and consistency for customers around the BRR process, through greater collaborative working and by developing clearer guidelines and a standardised approach. The original two risk ratings have been replaced with four new ratings, which are: low risk, moderate risk, moderate-high risk, and high risk. 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, their size, complexity and the degree and pace of change they experience. By creating these four risk categories, HMRC confirms that they can more efficiently target resources to where they are most needed. For low-risk customers generally, HMRC has advised that it still expects BRRs for large businesses generally to be carried out every three years, as they were previously. Whether this is achievable for public sector organisations remains to be seen, as we do know that the HMRC Public Bodies
| Professional in Payroll, Pensions and Reward | November 2019 | Issue 55 20
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