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Company Compliance Obligations

Understanding and managing tax risk

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Over the last few years there have been a number of government measures designed to tackle tax evasion and what they consider to be aggressive taxation strategy.

Most of the measures designed to provide transparency and accountability for taxation strategy are aimed at large businesses and include the publication of tax strategy, mandatory appointment of a senior accounting officer and country by country reporting requirements. HMRC is also running a consultation on a new requirement to annually notify HMRC of the uncertain tax positions they have taken, where those uncertain tax treatments exceed £1m.

Another recently introduced measure, the Corporate Criminal Offences for the failure to prevent the facilitation of tax evasion is applicable to all business entities, regardless of size.

To read more detail on each of the measures, and to find out how we can help, please click on the relevant dropdown below.

Large businesses and partnerships operating in the UK are required to publish a tax strategy that can be easily found on their website. The rules apply to:

  • UK companies, partnerships and groups with a turnover above £200m or a balance sheet over £2bn. 
  • Small UK entities if the UK entity is part of a multinational group that meets the OECD definition of a multinational enterprise, i.e. groups with an annual global consolidated turnover of more than €750m and subject to country-by-country reporting requirements.

The regulations require the entities to report annually on:

  • How the business manages UK tax risks
  • Its attitude to tax planning
  • The level of risk the business is prepared to accept for UK taxation
  • How the business works with HMRC

The strategy must be approved by the Board of Directors before publication.

If the conditions for publication are met in the previous financial year, a strategy must be published before the end of the current financial year. After the publication of the first strategy, a new one must be published in the next financial year or within 15 months, whichever is sooner.

There is an initial penalty for non-compliance of £7,500 and further penalties for continued non-compliance. There is also a clear overlap with the existing Senior Accounting Officer (SAO) regime and HMRC’s Business Risk Review, especially in relation to demonstrating tax governance and risk management. 

How can we help?

We can guide you through the requirements of the legislation and help ensure each publication is in line with the latest requirements in this area. 

A UK company must appoint a SAO if, either alone or when its results are combined with other UK companies in the same group, it has a turnover of more than £200 million, and / or a relevant balance sheet total of more than £2 billion for the preceding financial year.

The SAO must be the director or officer of the company who has overall responsibility for the company’s financial accounting arrangements and must take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements to allow tax liabilities to be calculated accurately in all material respects. 

Each year the company must:

  • Firstly notify the name of its SAO to HMRC after the financial year has ended
  • Submit a certificate to HMRC that must either confirm that appropriate tax accounting arrangements have been established and maintained or, where it is deemed that this isn’t the case, must explain what the shortcomings were 
  • The certificate must comply with certain prescribed specifications and must be unambiguous.

The obligations apply in respect of corporation tax, VAT, PAYE, insurance premium tax SDLT, SDRT, petroleum revenue tax, customs duties, excise duties including air passenger duty and bank levy, but not in respect to national insurance contributions.

The certificate must be submitted to HMRC no later than the company’s accounts filing deadline.

Where the obligations under the SAO regime are not adhered to, penalties may be due as follows:

  • A penalty will be chargeable on the company if it fails to notify the name of its SAO
  • A penalty will be chargeable on an SAO personally if they fail to meet their main duty, fail to give HMRC a certificate within the required timescale, or they provide a timely certificate that contains a careless or deliberate inaccuracy

Each of these penalties is a fixed amount of £5,000.

How can we help?

Whilst the legislation does not allow for agents to file certificates on an SAO’s behalf, we can guide you through the requirements in this area, helping you keep up to date on your filing requirements and deadlines are met, and ensuring appropriate wording is included the certificate.

CbCR is a direct filing requirement for parent companies of Multinational Enterprises (MNEs) with turnover exceeding €750m. 

The CbC report requires information to be provided annually covering each territory where the MNE has a taxable presence.

Only the parent entity of a MNE is required to file a CbC report, with other tax authorities then sharing the document. The CbC report must therefore contain data for all MNE group entities wherever they are based and regardless of their size. 

The CbCR filing deadline in the UK is twelve months after the year end (as for the corporation tax return).

UK taxable entities within CbCR, but where a parent entity has filed a full report overseas therefore must notify HMRC of:

  • The name of the company or partnership making the filing
  • That entity’s unique tax reference number
  • The territory where filing will be made

Only one notification is required for group entities within the UK, so one company may file the notification and include the names and tax reference numbers of the other relevant UK entities, including partnerships and branches or permanent establishments. 

The deadline for notification will usually be the end of the accounting period for which the report is being prepared.

There are two types of penalties associated with CbCR:

  • £300 penalty for not filing on time (plus a daily £60 penalty is then applied for each day filing remains outstanding after the assessment of the £300 penalty)
  • £3,000 penalty for providing inaccurate information

How can we help?

We can assist you with the preparation and submission of the CbCR if you are the parent entity of an MNE and required to file a CbC report in the UK. We can also assist you with notifying HMRC if the parent entity is overseas and a CbC report is being filed with a different tax authority.

HMRC is running a consultation on a new requirement for large businesses to annually notify HMRC of the uncertain tax positions they have taken, where the uncertain tax treatments, either individually or combined, exceed £1m.

Large businesses for these purposes have not yet been defined but it is possible that the rules will apply to businesses that are also in the Publication of Tax Strategy (PoTS) regime i.e. UK companies and groups with £200m UK turnover and £2bn UK balance sheet, also UK entities of any size that are a part of a group with €750m global revenues. 

As it stands, the notification should be a single, annual process which encompasses all of the relevant taxes with the same submissions deadlines as the Senior Accounting Officer (SAO) rules i.e. 6 months or 9 months after the year end, aligned with the statutory accounts filing deadline. 

The details that a business must provide in its notification also currently align with the SAO rules requiring a concise description of the technical issue and an indication of the tax at stake. 

It is expected that the penalties for non-compliance will also be similar to those of the SAO regime, with a proposed £5,000 penalty for failing to notify HMRC of the person responsible for submitting the certificate, and £5,000 on the person responsible, or the entity, where they should have notified but failed to do so. 

How can we help?

Until this proposal makes its way onto the statute book, we can guide you through the developments in this area. Once the new requirements do become law we will be on hand to guide you through everything you need to do. 

The CCO for the failure to prevent the facilitation of tax evasion came into force on 30 September 2017. An offence occurs when a person acting on behalf of a business (defined as a relevant body), such as an employee, agent or service provider – facilitates the evasion of tax of a third party while acting on behalf of the business.

This legislation covers all businesses including limited companies, partnerships and LLPs. It does not matter if they are operating commercially or not, so charities are covered too. There is an equivalent offence under foreign law to apply to businesses with a UK connection in respect of non-UK tax evasion.

It is every organisation’s responsibility to ensure they take time to review, document and adapt their business processes to minimise the risk of committing the CCO. HMRC’s guiding principles give some basis for what they consider to be reasonable steps but this is, as yet, untested. They have however, indicated that at the very least a business risk assessment should be undertaken and documented by every organisation and this should be reviewed (and additionally documented) at least annually. 

How can we help?

With a risk assessment a recommended minimum first step, we can work with you to review the processes currently in place, highlight risk areas and assist you with the documentation and communication of these procedures to relevant employees. We also have experience of working with legal advisers to include clauses in specific contractual relationships with regard to this legislation. 

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JOE BLOGGS - CEO OF BLOGGS LTD

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