HMRC has published guidance on new rules requiring large businesses to publish their tax strategy, outlining what information should be included, when it should be published, and the penalties for failing to comply
The regulations apply to companies, partnerships, groups or sub-groups with either a turnover above £200m or balance sheet over £2bn in the tax year prior to publication.
For groups and sub-groups, this is made up of the combined totals of all the relevant bodies, while open-ended investment companies and investment trusts are not required to publish a tax strategy.
HMRC says this requirement is separate to the 2014 OECD’s country by country reporting model (CBCR). A business not headed by a UK company not meeting the threshold in its own right may still qualify if they satisfy the OECD’s CBCR framework threshold of a global turnover of more than €750m (£622m).
HMRC says the tax strategy should explain the business’s tax arrangements, but does not need to include amounts of tax paid or commercially sensitive information. Multinationals need to publish any strategy, or parts, relevant to UK tax.
The strategy should include details of how the company manages any tax risks, and explain any risks linked to the business’s size, complexity and any changes to its operation.
Other information on governance arrangements which should be included are a high level description of key roles and their responsibilities; information on the systems and controls in place to manage tax risk; and details on the levels of oversight of the business’s board and its involvement.
HMRC says the document should demonstrate the company’s attitude to tax planning, and if the business has a code of conduct, that should be included.
Companies should also indicate why they might seek external tax advice, if any; an outline of their tax planning motives; and the importance of each to their tax strategy.
In addition, the tax strategy needs to show how the business works with HMRC in relation to current, future and past tax risks; tax events; and interpreting the law.
The tax strategy must be made available free of charge on the internet as either a separate document, or a self-contained part of a wider document, until such time as the following year’s strategy has been published.
Businesses need to publish their first tax strategy before the end of their first financial year commencing after Royal Assent of Finance (No. 2) Bill 2016. After that, they have to publish one per year, within 15 months of the last one being published.
Failure to comply with these requirements, or failure to ensure the tax strategy remains accessible free of charge, can result in a penalty.
HMRC says it will send a warning notice giving 30 days to either publish the strategy or make it available again, free of charge.
Any penalty will run from the first day a company failed to publish its strategy properly, and are set at up to £7,500 for the first six months and for a second period of six to 12 months, followed by 7,500 every additional month after that.