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HMRC consults on Business Risk Reviews for large business

15 September 2017

HMRC published its consultation document “Large Business compliance – enhancing our risk assessment approach” on 13 September 2017 with responses due by 6 December 2017. 

HMRC is seeking to take a refreshed approach in how it undertakes Business Risk Reviews (BRR) of large businesses – a process that has undergone only limited change since its introduction in 2007. The BRR is key in determining the extent of scrutiny and resource that a business receives from HMRC.


The existing model for HMRC’s BRR evaluates an organisation as either low risk or non-low risk. 

Some organisations have expressed concerns over the potential subjectivity of these black or white judgements. Importantly, a commonly held view within businesses, and acknowledged by HMRC, is that there is a wide spectrum of tax compliance behaviours. This is true across businesses that are all currently classified as non-low risk.

In addition, we have received feedback from some organisations rated as non-low risk that HMRC’s response in terms of the level of scrutiny is not always proportionate and appropriately focused. 

The consultation document proposes a revised BRR programme that offers a greater level of differentiation and will enable “Client Relationship Managers to link changes in HMRC’s risk profile more closely to changes in business behaviours.” For example, this would separate businesses which are demonstrating more compliant lower risk behaviours from those that have “an appetite for aggressive tax planning.” This will enable more accurate rating of businesses that are moving towards achieving a low risk rating. 

HMRC is also concerned that customers don’t necessarily know where they are in the compliance risk spectrum. Companies may lack a benchmark by which they may improve their overall compliance.

The consultation

Currently, the BRR is based on an assessment of seven criteria which capture:

  • Inherent tax risks of the business (its complexity, boundary such as extent of international structures and the pace of change in the business)
  • Behavioural tax risk (governance, delivery, strategy and contribution). 

An important point to note is that a business may have inherent factors that potentially could create a major tax compliance risk, but can still be rated as low risk if they effectively manage these risks. 

In order to address the range of behaviours covered by the non-low risk banding HMRC has proposed that:

“it may be that further sub-dividing the categories emerging from a BRR 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.”

We welcome this point, and see benefits in the various options put forward by HMRC in sub-dividing the categories. This includes the development of a ‘pyramid’ of behaviours from significant risk to low risk, as well as the 3x3 or 2x2 grid models used by the Australian Tax Office. We understand that this is already being used by HMRC with some of their customers.

The opportunity to separate existing non-low risk behaviours is a positive development. However, thought is needed in how various segments within the ‘pyramid’ or grid might be defined, and whether the existing seven risk factors as above would remain appropriate.

A further key question posed is how to include both inherent risk and behavioural risk into this new model, and HMRC is seeking responses to this.

Alignment to the Tax Control Framework (TCF)

In the consultation document, HMRC recognise that the TCF enables an organisation’s internal controls to ensure the accuracy and completeness of its tax returns and disclosures. HMRC says the importance of a TCF lies in “its ability to provide a verifiable assurance that the information and returns submitted by a taxpayer are both accurate and complete.” 

Importantly, HMRC sees “a direct alignment between the key elements of the TCF and our decisions relating to low risk, particularly the behaviours described in the inherent risk factors”. As such, it would appear that many organisations that are new to the TCF will have to consider how their tax operating model falls within this framework in the future.

The concept of the TCF was first introduced by the OECD Forum of Tax Administration. TCF is a fundamental element in the co-operative compliance approach. More information about the TCF and its six building blocks is provided on the OECD website.

Next steps

We see value in a refreshed approach to BRRs for the majority of businesses as this will enable a more accurate and objective assessment of an organisation’s approach and appetite to tax compliance and tax risk management.

If you would like advice or guidance on how to manage to impact of the changes announced in the Winter Draft Finance Bill 2017 to 2018 please get in touch.

Read more on the Draft Finance Bill