On 30 November 2021 the UK government published its response to the review of large businesses’ experiences of UK tax administration, taking into account the feedback received from stakeholders. The review, first announced in the Spring Budget 2021, looked at the compliance experience of large businesses in relation to all taxes and duties.
The stakeholders were generally positive about HMRC’s co-operative compliance model but noted that the experience was inconsistent and that HMRC should continue to build capability to support continued improvement in the tax administration of large businesses. The stakeholders were willing to engage in cooperative compliance and to build trust.
The businesses attached importance to mitigating tax uncertainty and noted that the complexity of tax rules could lead to uncertainty especially for taxpayers with international operations. The businesses wanted to manage uncertainty at an early stage by obtaining tax clearances, engaging in real time working and receiving HMRC guidance. Up-front certainty was needed for complex transactions and the stakeholders noted the additional uncertainty arising from the implementation of the OECD base erosion and profit shifting (BEPS) rules.
Long-running enquiries were mentioned as a source of tax uncertainty. Timelines are important in tax enquiries and transparency is necessary in the dispute resolution process. There were also particular challenges arising within transfer pricing enquiries.
Government response
The UK government intends to take action to improve tax administration for large businesses by issuing new guidelines for compliance; making changes to improve the management of long-running enquiries; and improving the cooperative compliance process.
Guidelines for compliance and improved guidance
HMRC will develop new Guidelines for Compliance to provide practical guidance and greater transparency on the approaches HMRC regards as higher or lower risk and the associated response. HMRC’s technical guidance will be improved and priority areas for guidance improvement will be identified. The outputs from this process will commence from mid to late 2022.
Changes to address long-running enquiries
HMRC is liaising with stakeholders to look at ways to improve the effectiveness of transfer pricing enquiries, which can be particularly difficult. They are identifying issues and barriers in relation to transfer pricing documentation, trust and transparency, fact finding and evidence, and governance and case resolution.
Working with external stakeholders, HMRC intends to set up new indicators of long-running enquiries and put in place a transparent process to improve the resolution of issues. These indicators could include the duration of certain phases of the enquiry process, and other factors linked to HMRC’s Litigation and Settlement Strategy. Work on agreeing the indicators and the related process will take place in early 2022.
Improving the co-operative compliance experience
HMRC will liaise with large businesses to improve the consistency of the co-operative compliance process, focusing on the areas seen as priorities by businesses. These priorities include transparency on governance processes, project planning for enquiries and clarity on the role of the cooperative compliance manager (CCM) in resolving disputes.
For large businesses that do not have a CCM, support will continue to be given by the mid-sized business directorate’s customer engagement and support team.
