Tax body welcomes collaborative approach to improving the tax practice of large companies

The Chartered Institute of Taxation (CIOT) has welcomed a change to the Government’s approach1 to improve tax compliance by large companies but remains sceptical about the effectiveness of a ‘special measures’ regime to target tax abuse.

John Cullinane, Tax Policy Director, said:

“We are pleased that the framework for improving large business tax compliance is more collaborative than the originally planned code and includes reciprocal obligations on HMRC and taxpayers. It will provide a necessary rejuvenation of the approach that has been used with success by HMRC’s Large Business Directorate in the last decade.
“Moves by large businesses to provide greater transparency around their tax affairs are an important step to improve public trust in the corporate tax system. It also shows that Britain is a straightforward place to do business.

“We hope a collaborative approach will overcome the tightening of HMRC's governance procedure, which can lead to an over-rigid application of process, causing businesses problems in ascertaining their tax position even when there is little risk to the Exchequer.

“We hope the spirit of the collaborative approach by HMRC can be extended to small companies in the future.”

The CIOT contributed to the Improving Large Business Tax Compliance consultation process carried out over the summer and was critical of plans for a code of behaviour for large companies, which were subsequently dropped, and questioned the effectiveness of a new ‘special measures’ regime.

CIOT was critical of the proposed code because it was focused on what the taxpayer has to do, and little was offered in relation to how HMRC should deal with taxpayers fairly and consistently. The Institute was also wary of policy creep around the nature of any code being ‘voluntary’, as was seen with the Code of Practice on Taxation for Banks.

HMRC plans to introduce a Special Measures regime2 to tackle large businesses that they regard as persistently undertaking aggressive tax planning, or who refuse to engage with HMRC in a transparent manner. Although the number of offenders is small the amount of tax at stake is considered high.

John Cullinane said:

Special measures

“It is difficult to see how the introduction of a special measures regime will be especially effective and we are still opposed to the naming and shaming of those subject to it, because it may relate to unresolved cases and the threat of it may damage the trust and good relationship the majority of businesses have with HMRC. We would have preferred HMRC to have invoked the GAAR to deal with persistently uncooperative businesses before introducing a whole new regime such as this.

The Code

“We are pleased that the Government seems to have accepted that there is nothing to be gained by legislating for the introduction of a code of behaviour for large businesses. HMRC will already be aware of whether or not a taxpayer complies with these behaviours a result of the business risk review and customer relationship manager (CRM) programmes.


“We would also like to see more effort from HMRC to address the continual movement of CRMs from business to business. We are simply asking HMRC to recognise that where a business has had a new CRM on average every 12 months, who may or may not be familiar with the taxpayer’s particular sector, it is not easy for the new CRM to fully appreciate the particular features of that sector.

Tax strategy

“With regard to the requirement for large businesses to publish their tax strategy, we hope that this legislated public transparency does not crowd out potentially valuable voluntary disclosures that may be business or sector specific, and are already being published as a result of EU developments and the impact of BEPS and other initiatives. In our view, what is currently being produced by businesses in this area is more than sufficient.

“Requiring the UK subsidies of foreign multinationals to file when they are too small for the senior accounting officer rule is an obvious example of a burden without any gain for HMRC.”

Notes to editors

1. The Government published earlier this month its draft Finance Bill, which includes significant new tax governance requirements for larger businesses. The package of measures will apply to about 2,000 large businesses (those with annualised turnover in excess of £200m or with balance sheet total in excess of £2bn). They will come into force in 2016.

2. Businesses which are identified as likely to be entered into Special Measures will be given an initial notice period, designed to give an opportunity to change behaviours / approach to aggressive tax planning. They will be hit with sanctions if they fail to demonstrate a significant improvement in behaviours within 12 months.

3. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.