HMRC to review approach to tax compliance in big companies

HMRC is considering adopting a new, more differentiated approach to managing tax compliance amongst the largest companies, and is a consulting on potential changes to its business risk review (BRR) process, which has not been updated for a decade

Customer relationship managers currently conduct a periodic business risk review of each large business, assessing their risk profile and placing them into a binary ‘low risk’/‘non-low risk’ category.

This assessment is a key determinant of the level of scrutiny and resource the business receives from HMRC. 

The process has undergone limited change since its introduction 10 years ago, and HMRC is now seeking views on a refreshed business risk review approach, which it says is needed to maintain a shift in large business compliance behaviours.

Options include having more risk categories tailored to the tax risks encountered in the large business population, so the business risk review could place businesses into a low risk, low-moderate risk, high-moderate risk, high risk and significant risk category.

HMRC argues that moving to a greater level of differentiation across the population could increase the behavioural influence of the business risk review process – allowing customer relationship managers to link changes in HMRC’s risk profile more closely to changes in business behaviours.

Greater segmentation, particularly if based on objective and auditable criteria, would also allow HMRC to explore new, more sharply focused, behavioural incentives to support compliant lower risk businesses and target the minority with an appetite for aggressive tax planning. It would also allow businesses that are close to achieving a low risk rating, to be more accurately rated.

It may be that further sub-dividing the categories emerging from a business risk review might assist HMRC in its efforts to direct resource to the areas of greatest risk. It may also provide a more effective lever for improving the compliance of those who do not aspire to low risk.

Currently if a large business is classified as low risk, the customer relationship manager will not usually carry out another formal business risk review for two to three years, rather than annually. The review asks to what extent should the level of risk of the large business, influence the frequency of HMRC conducting a business risk review.

HMRC is also seeking views on the risk criteria and the approach to tax planning, and whether it should be more explicit around the risks in corporation tax, VAT, employer duties (PAYE/National Insurance Contributions), and/or international tax risks.

Options for updating the business risk review include a simple refinement of the current approach (e.g. a five segmented risk rating - low risk, moderate-low moderate-high risk, high risk, significant risk) to a more elaborate framework, such as introducing a nine box grid or distributed approach where large businesses are ranked according to their risks and behaviours. One possibility is adopting an approach similar to the Australian Tax Office, that reviews the impact (consequence) and likelihood of certain risks.

The review also explores the interplay between the business risk review and the OECD’s views on tax control frameworks within multinational enterprises.

The deadline for comments is 6 December.

Consultation document: Large Business compliance – enhancing our risk assessment approach is here.

Report by Pat Sweet

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