Improving Large Business Tax Compliance in the UK

1. Improving Large Business Tax Compliance(Co-operative compliance in the UK) Jeremy Tyler Head of Business and Agents Strategy HMRC Barbados November 2016

2. Summary • UK has had ‘co-operative compliance’ since 2006 • UK election in 2015 was an opportunity to do a stock take on how it is working • From most perspectives the answer is – very well! • But some big tensions, including….. • International competitiveness v’s Even-handedness • So, how do we fine tune co-operative compliance? • 2015 Consultation: FA16 measures • Next Steps?

3. Around 5.4m businesses in the UK 5.3m Small 117k Mid-size 2,100 Large

4. HMRC Strategy for Business HMRC provides all businesses and agents with tailored tools and support, interacting digitally in real time. HMRC deploys highly skilled face to face resource to those who deliberately don’t comply and bend the rules, regardless of their size. 2020 Vision • Maximise revenues through upstream compliance and focussing face to face interventions on deliberate behaviours; • Improve customer experience of dealing with HMRC by becoming a truly customer-centric organisation; • Reduce the operating costs for HMRC to serve businesses by leveraging digital opportunities and smarter working; • Support the delivery of wider Government objectives including business growth; Objectives Principles for HMRC business strategy Minimise Complexity We work with colleagues to achieve policy aims as simply as possible; ensuring that the most effective collection mechanisms are employed. Any necessary complexity which remains does not, on balance, impede growth and we support businesses in navigating it, to continually improve compliance. Agents Deliver Compliance Agents play a key role in helping businesses comply with their tax obligations. We will provide agents with digital tools so they can enhance the service they provide to customers whilst tackling those who do not support and encourage compliance. Proportional and fair Our approach is consistently proportional to the risks and we treat all businesses fairly. We will be even-handed in the design and delivery of our services and compliance activity, proportionate to risks posed. Intelligence Driven We build flexibility into everything we do at a macro and micro level. This means that we are nimble to respond to changing business environments both in the UK and internationally. Meanwhile, our systems and staff personalise services for customers on the basis of their data and robust customer insight and understanding. Certainty HMRC and customers have a high level of assurance they have paid the right tax through their digital services or working with a CRM on complex decisions. We make tax easily understandable, and maintain a stable, transparent tax system. Tax bills are predictable, which ensures customers have sufficient control over their financial affairs and can focus resources on running and growing their business.

5. OECD on co-operative compliance • OECD is clear that “co-operative compliance approach is based on co-operation but with the purpose of assuring compliance, which is to say payment of the right amount of tax at the right time.”

6. Co-operative compliance in the UK Applies to Large Businesses: the 2100 businesses dealt with by HMRC’s Large Business Directorate • All have a CRM (Customer Relationship Manager) • This ‘man-marking’ is the most effective way to manage the tax compliance of these businesses given the tax at stake, their size and complexity, and (sometimes) their behaviours. • An ongoing relationship to develop in depth knowledge of the business itself, including the economic and the commercial context in which it operates, and the organisation that runs the business, including internal governance, and the appetite for tax planning and tax risks.

7. Co-operative compliance in the UK Encourages open and transparent working relationship with us • To identify and resolve issues in real time • To discuss HMRC’s Business Risk Review, a regular assessment of the tax risks presented by the business • To allow HMRC assurance of policies, systems ands processes • To ensure that Tax is in the Boardroom, whether as part of the normal internal governance process • Or by engagement through the High Risk Corporates Programme (HRCP) which is targeted at the very highest risk businesses • In fact over 2/3rds of Large Businesses are under active enquiry at any one time. • To make sure that they pay the right amount of tax at the right time.

8. Does it Work? Yes!!! CRM role has been one of the success stories of HMRC: whether in terms of risk management, HMRC & Business costs, or Customer satisfaction • In 2014/15 £7.3bn in compliance yield • Over 50 businesses have been through the High Risk Corporates Programme (HRCP) since its inception in 2006. • Since April 2013 we have won 28 out of 35 (80%) large business avoidance cases taken to litigation protecting over £1.37bn tax • Cost ratio for large business interventions 75:1, compared to 12:1 for SMEs • Consistently high customer survey scores (c80%) • Which also reflect changing attitudes to tax avoidance

9. Does it Work? Yes!!! But… • More still needs to be done to embed best practice, including low risk appetite, across the whole population. • The relationship can be misrepresented, with accusations of a lack of even-handedness • Ahead of 2015 election worked up a number of ‘behaviour change’ options: in particular • promote board accountability for tax, • transparency on approach to tax planning • reduction in aggressive behaviours

10. 2015 Post election Policy Context Government priorities • ‘UK open for business’ • CT Rate changes • Business Tax Road map • Deregulation • Support for economic growth • Eliminate the deficit - Large Business must make a contribution • UK is open for business: in return Government expects Large Business to act in socially responsible ways, including in relation to tax

11. 2015 Consultation Three topics (as finalised) • Publication of Tax Strategy as it relates to, or affects UK Taxation • Introduction of a ‘Framework for Co-operative Compliance’ • Narrowly targeted ‘special measures’

12. Tax Strategy: final design • Primary objective • promote board accountability for tax, and encourage • transparency on approach to tax planning • Firmly embed tax in the corporate governance process • Final design • The strategy that applies in the UK (whether a global strategy, or a bespoke UK strategy) • Principles based rather than rules • Free to illustrate how applied in practice • Documented and approved by the Board • Published annually • Application of penalty for failure to publish

13. Tax Strategy: content Each strategy needs to cover • Approach of UK group to risk management and governance arrangements in relation to UK tax • Attitude towards tax planning (UK focus) • Levels of risk in relation to UK taxation • Approach to HMRC relationship

14. Framework for Co-operative Compliance • Primary Objective • intended to promote and affirm a set of principles that both large businesses and HMRC should engage and work within. • recognises the value of mutuality between both parties; and influences HMRC’s approach to risk management. • Covers • Professional Working • Business Governance & Tax Planning • Risk Management • How will HMRC use the framework? • as part of HMRC’s existing risk management approach. • HMRC will view continued compliance with the Framework as an indicator of lower-risk behaviour, and non-compliance with the framework as an indicator of higher-risk behaviour.

15. Special Measures Primary objective: new sanctions for the handful of businesses that • persist with aggressive tax planning or uncooperative behaviours where the size of the tax at risk is a key element; and • who have exhausted our current risk management routes, like the high risk corporates programme (HRCP), but who persist in aggressive planning or persistently refuse to work with HMRC in a collaborative and transparent way. New sanctions include • Setting aside ‘reasonable care’ defence for individual penalties where there is a pattern of behaviour • Naming and shaming

16. Next steps Tax strategy and special measures • Finance Bill 2016 – now in UK law • Will keep under close review to see how businesses respond Framework • Soft launch April 2016, the 10th anniversary of the formal introduction of CRMs/cooperative compliance in the UK • Hard launch before end 2016 Further work • Continuing ministerial interest in large Business, MNEs in particular • Business Risk Review • CRM skills