UK Businesses required to publish Tax Strategy

I previously wrote about the HMRC consultation on Improving Large Business Tax Compliance. One element of this was the publication of a Tax Strategy.

This then appeared in the Autumn Statement, and now in Finance Bill 2016.

The proposals will only come into force after Royal Assent, but it would be bold to bet against this making it into the Finance Act broadly as it is.

So we are left with 2 very obvious questions. What do the requirements say, and what should businesses be doing now?

What does the requirement say?

So firstly, it applies to UK parented businesses, but also overseas businesses with companies or sub-groups in the UK. The “qualifying” threshold is either of:

Group turnover > £200 million

Group balance sheet > £2 billion

This pushes the obligation way down beyond the FTSE350, to a place where many businesses will not have a dedicated in-house tax function. It also captures many multinationals with UK operations.

These businesses will be required to publish a Tax Strategy as it applies to UK tax. In reality multinational businesses do not generally have a different strategy for UK tax versus elsewhere in the world, so this really means their global Tax Strategy.

It needs to be published on the Internet by the end of the company financial year in which the measure becomes law. So that will be 2016. It will then need to be re-published annually thereafter.

It needs to cover the following areas:

Contents of a group tax strategy

(a) the approach of the UK group to risk management and governance arrangements in relation to UK taxation,

(b) the attitude of the group towards tax planning (so far as affecting UK taxation),

(c) the level of risk in relation to UK taxation that the group is prepared to accept, and

(d) the approach of the group towards its dealings with HMRC.

However, in practice it is very difficult to address these specific areas without setting them in the context of a wider explanation of the approach taken to tax.

The penalty for non-publication is relatively low at £7,500. However the non-financial penalty, being reputational damage, and the impact on the relationship with HMRC (and on the risk rating) could be far greater. Similarly to the SAO regulations, businesses will want to have done what they can to avoid such penalties.

There is no specific requirement for the Strategy to be approved by the Board, but I suspect most Tax Directors or CFOs will want to see that happen.

What do businesses need to do now?

Businesses need to start the process of preparing a public facing Tax Strategy.

Very few will already have one. Many, towards the larger end of the scale, will have an internal strategy or policy document, and will need to refresh this and consider what to publish. Others will of course be starting from scratch.

So is there a simple solution? Well, I’m afraid not. No piece of software or statement about “complying with the law” is going help.

In my experience there isn’t an off-the-shelf Tax Strategy that is right for every business. There may be some common themes, but a Tax Strategy needs to reflect the way the business operates, and its underlying appetite for risk. It can’t be the other way round.

Every business will want to consider carefully how they approach some of the trickier commitments.

Here are the first 3 things impacted businesses should be doing now:

• Identify what tax governance documents you already have in place;
• Understand what best practice looks like;
• Start having a conversation about what is and isn’t right for your public statement on tax. This may mean talking to internal stockholders, including the Board.

The main advice is don’t just assume that you can wait to see what others publish, and copy that. It won’t work, and you may find yourself bound to a public statement you aren’t comfortable with.

Engaged Consulting is working with a number of businesses, from the FTSE100 down, on developing or updating their tax governance framework, including preparing a public statement on tax strategy. http://www.engaged-consulting.com/aboutus.html