How does HMRC’s Large Business directorate currently operate?
The UK’s 2,000 largest and most
complex business customers play a key role in the UK economy, accounting for around 40% of total tax receipts. To manage the tax compliance of these businesses, HMRC expanded the Large Business (LB) directorate in April 2014.
By investing in direct engagement with our large business customers, we have in-depth knowledge of their business, the commercial environment in which they operate, their appetite for risk and their internal governance. This allows us to identify and tackle tax compliance risk effectively and ensure the right amount of tax is paid.
The Large Business strategy is delivered through the customer relationship manager (CRM) model. CRMs are experienced and highly trained tax professionals, who ‘man-mark’ these complex and potentially high-risk businesses. By working as far as possible in real time and focusing resources on the highest risks, they provide certainty and speedy resolution of issues.
Our CRMs don’t work alone. They’re supported by a range of HMRC tax experts who consider the risks that the business may present and typically specialise in each relevant regime – corporation tax, VAT, employer compliance, excise, customs and international trade, and so on. They are also supported by a range of other specialists, such as policy experts, accountants, solicitors, audit specialists, transfer pricing specialists, risk analysts and trade sector experts.
What is your general approach to large businesses?
Our approach to large businesses is just one facet of a general approach that we adopt – across HMRC – to encourage all customers to comply with their tax obligations. We call this ‘promote, prevent, respond’.
First, we promote voluntary compliance, giving all our customers the opportunity to meet their obligations in the most straightforward and cost-effective way. In Large Business, we deliver this through the CRM model, which lends itself to real time working.
Our CRMs will continue to influence large businesses, promoting low-risk behaviour. We’ve already been at the forefront of putting tax on the boardroom agenda, and I regularly engage at board level with the highest-risk companies. We look at businesses’ tax strategies, as part of HMRC’s risk review process. The measure we are currently consulting on – requiring the publication of a tax strategy and accountability at board level – takes us a step forward in promoting low-risk behaviour. It will ensure that the tax strategy is considered at the highest levels and it will commit businesses to transparency by making their approach public.
We prevent non-compliance by working with businesses in real time – discussing proposed transactions and considering the tax risk before decisions are taken. This allows us to ensure that the tax treatment is correct from the start, as well as giving certainty to our customers. It can also allow us to identify problems and loopholes quickly, so that our policy colleagues can ensure our legislation remains robust.
Finally, we respond immediately when we don’t agree with the business’s tax treatment of a transaction, and seek to resolve the dispute by agreement in line with our litigation and settlement strategy. We don’t hesitate to litigate, where appropriate, and HMRC has a very strong track record on litigation over recent years, winning over 80% of all avoidance cases taken to court.
In the future, we want to use smart data and analytics as a key part of our compliance activity. Large Business has been at the forefront of using data and developing digital tools and skills to identify and assess tax risk. We aim to take these digital tools to the next level in order to pinpoint risk and target our enquiries more effectively. This is better for HMRC, as it’s a more efficient use of our resources, and better for the customer, as our enquiries will be more tightly focused.
How does HMRC ensure all CRMs have the relevant business understanding?
Recognising the need to understand businesses’ complexities and commercial drivers, we continue to invest in growing expertise within HMRC and bringing in specialist knowledge from the commercial world. We have a rolling programme of continuous professional development and recruitment to maintain and build our internal capabilities.
Alongside training programmes, such as our highly regarded graduate recruitment programme, we’ve also been successful in attracting high calibre tax professionals from industry and the accountancy profession. These recruits bring a valuable fresh perspective to our teams.
We’re always seeking to enhance our skills and develop a more flexible, diverse and dynamic workforce.
What can you tell us about HMRC’s new diverted profits team?
The diverted profits team brings together around 40 experienced specialists. They’re working with CRMs and tax specialists to look across all business sectors and consider whether businesses have used profit shifting structures which HMRC should challenge.
Diverted profits tax (DPT) is an important new tool to be used to counter this profit shifting. However, it’s a closely targeted measure which focuses on contrived arrangements designed to erode the UK tax base. It should therefore be seen in the context of HMRC’s wider strategy to tackle international tax risk.
We have, for example, collaborated with five international partners in a project focusing on multinational businesses operating in the digital economy. We’re using the knowledge gained to identify and challenge the risks that certain multinationals present to the UK tax system, whether they’re working in the digital sector or other business areas. This will inform our approach to administering DPT and applying other countermeasures to profit shifting, such as transfer pricing, targeted anti-avoidance rules or other legislation.
The UK continues to work with the OECD to look closely at the way in which large businesses pay tax through driving forward international efforts to address base erosion and profit shifting (BEPS).
HMRC recently ran a consultation on improving large business tax compliance. What effect might the consultation have on your approach?
The large business strategy works both for HMRC and for large businesses. We’ve brought in more than £38bn in additional compliance yield since 2010, while maintaining high levels of customer satisfaction. Within the OECD, the UK’s strategy of intensive engagement is recognised as being at the forefront of good practice. Our priority is to strengthen, not change, our strategy.
We’re currently consulting on a package of measures aimed at improving large business tax compliance. These build on the mutual trust and transparency that are the basis of a successful relationship between CRMs and business, and seek to embed positive tax behaviours and drive further behavioural change. We want to see more transparency in the way that businesses approach taxation, and to encourage them to move away from avoidance and aggressive tax planning. These measures will also equip HMRC with additional tools to deal with the small minority of persistently high-risk, large businesses.
Why legislate for the publication of a tax strategy now?
It’s important to recognise the wider context in which we’re all working. International views from the OECD and EU show there has been a general move towards greater transparency in corporate tax affairs. The international landscape for tax transparency is shifting, and the current proposal to require large businesses to publish their tax strategy is consistent with this trend. It is already best practice, and this new obligation will ensure that all large businesses adopt it.
Transparency promotes tax compliance, provides a fairer, more stable environment in which to do business, and supports UK competitiveness, as well as the government’s aim to have the most competitive tax system in the G20.
What are your key challenges over the next five years?
HMRC has a very strong track record in securing additional compliance yield from large businesses. In 2014/15, Large Business successfully delivered another £7.3bn for the public purse, but this figure reflects only a fraction of our work.
Looking to the future, one of our key challenges is to measure the true value of our work and of the CRM model itself. Traditionally, we’ve focused on the additional yield we bring in from compliance work, but this doesn’t fully capture the value derived from promoting voluntary compliance by businesses, and from ensuring the correct tax treatment in advance of transactions.
The CRM model is likely to remain the backbone of our large business strategy, but our engagement with our customers will become increasingly digitised. The ability of businesses to self-serve and manage more of their relationship with us online, together with our use of enhanced digital tools to identify tax risk, will allow us to improve customer experience and focus our resource at the higher end of the risk spectrum.
Of course, we need to ensure that we equip all our staff with the right skills to meet these challenges.
In terms of the role of large corporates, we’ve seen a move away from the use of structured avoidance products over the last ten years. We hope that in five years’ time, such products will be a thing of the past, and that we will see a similar shift away from aggressive tax planning towards increased transparency, low-risk tax strategies and voluntary compliance.
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