HM Revenue & Customs (HMRC) has launched its new approach to the risk review of businesses that fall under the remit of its large business Customer Compliance Managers (CCMs).
Businesses that, generally, fall under this regime will be: those with a UK turnover of more than £200 million; smaller UK businesses that are part of a large multi-national group; or those that are identified as complex or operate in a complex industry for tax purposes. If your business has an allocated CCM then Business Risk Review plus (BRR+) rules are applicable to you from 1 October 2019.
Following consultation, HMRC recognised that its review processes to determine a risk rating for businesses should be more transparent and structured. Under the new approach there are more levels of ratings and HMRC has published clear guidance on how it will approach the new system. This is to be welcomed as it should equip finance and tax teams with key actions on how to improve their business’s approach to tax to move towards a low risk rating. HMRC has also published various risk review templates for HMRC, and businesses, use to establish the risk rating for each taxpayer.
The new categories are:
- Moderate risk
- Moderate to high risk
- High risk
Why does it matter which category your business falls into?
Simply, if a business has a low risk rating then it is likely to only have to go through the BRR+ risk review process with HMRC every three years. All other businesses will have their risk status reviewed by HMRC annually.
Low risk rating is also an indicator to boards, shareholders and auditors that businesses have clear tax policies and an appropriate attitude and approach to tax risk. It is therefore important for finance and tax team to work towards low risk rating.
So, if we are low risk it’s a three-year cycle with nothing to do in between?
Unfortunately not. The criteria set out in HMRC guidance to achieve low risk rating mean that businesses must implement, monitor and continually update their processes and consider their approach to tax throughout to ensure that any future reviews by HMRC will result in the same BRR+ rating being maintained.
So what do I need to do?
HMRC has set out in detail and provided checklists regarding their expectations. Their new approach will identify the areas of tax risk and focus on these (for example, for a housebuilder this could be employment taxes and VAT, or for a multi-national this could be transfer pricing policies). For each area reviewed, HMRC will consider:
- Systems and delivery
- Internal governance
- Approach to compliance
We have summarised these three areas and outlined HMRC’s approach here. We have a team that is working with clients on ensuring their approach to tax risk and documentation provides the best opportunity to be categorised as low risk.
For more information please speak to your usual Saffery Champness partner, or contact Sean McGinness.