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Article:

Business risk reviews – new pilot scheme on the way

10 April 2018

As we explained in September 2017, HMRC is seeking to take a refreshed approach to how it undertakes Business Risk Reviews (BRR) of large businesses and has been consulting on possible improvements.

From the summary of consultation responses that HMRC has published, it is clear that there is strong support (80% in favour) for a less binary approach to risk categories, ie expanding the range of categories available where businesses cannot be categorised as low risk. It is also clear that businesses want BRRs to take more account of the effort they already put into tax risk management compliance and that BRR criteria are not always applied consistently across HMRC.

There was overwhelming support for greater segmentation within the BRR and strong support for the introduction of focussed BRRs addressing specific risk regimes or areas: both would provide greater clarity and help all parties with resource allocation.

 

HMRC’s response

HMRC has not finalised the design of the new improved BRRs but has confirmed that it will pilot a new approach during 2018 with the intention of rolling out the new BRRs nationwide for 2019/20.

We suspect that the pilot will test different types of risk categorisation so that HMRC can arrive at “the optimal level of risk categories” for the improved BRRs. However, no matter what hierarchy of risk categories it finally settles on, HMRC has committed to reforming BRRs so that they: 

  1. Recognise the efforts made by businesses complying with the Senior Accounting Officer (SAO) provisions and surrounding their published tax strategies
  2. Are structured to “prompt and support continuous dialogue between the Customer Compliance Managers and the customer on reducing tax risk”
  3. Provide a clear set of actions and timelines
  4. Create “clear advantages and disadvantages of achieving a certain risk rating”.

 

Our view

While we welcome greater recognition for efforts businesses put into SAO and tax strategy compliance, it will be interesting to see how HMRC tries to distinguish between businesses that regard these as simply ‘box ticking’ exercises and those that aim to comply with the spirit of these rules. It is clear that points two and three above are intended to improve consistency of approach to BRRs by introducing measurable events to the BRR process.

While point four will be a crucial element in encouraging better ‘behaviours’ through BRRs, HMRC says more work is needed to help it “create a consistent and level playing field for all of HMRC’s customers”. It is clearly sensitive to past press claims of “sweetheart” deals being struck with large businesses and sees considerable tension between rewarding good compliance behaviour and applying tax laws equally to all businesses. However, there are some clear dividing lines; for example, it suggests that only large businesses that adhere to the OECD’s Tax Control Framework should be able to achieve a low risk rating under the new BRRs.

Read the full summary of responses.

For help and advice on any tax risk management issue please contact Ed Dwan or James Egert.

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