New rules to force large businesses and some partnerships to publish an annual tax strategy are set to come into force later this year and will affect 2,000 of the UK’s largest businesses with a penalty regime in place for those companies that fail to comply
HMRC has published guidance on the new requirement for large businesses to publish an annual tax strategy, with details of the scope and severity of penalties for non-compliance.
In terms of timing, the dates for the first tax strategy reports are dependent on the legislation coming into force in the Finance Bill (No 2) 2016, set to be passed in July 2016.
The first publication date should be in line with the start of the first financial year after the Finance Bill receives Royal Assent.
According to the guidance, the rules will apply to companies administered by the large business directorate at HMRC and which have customer relationship managers (CRMs), but a business will have to determine whether it qualifies.
The legislation covers partnerships if it satisfies either of the balance sheet and turnover conditions on the last day of its previous financial year.
Therefore, partnerships fall within the rules if its turnover was more than £200m or balance sheet total was more than £2bn.
The same requirements apply to groups, and the guidance contains information about groups which come in scope, including multinationals and UK groups where companies do not have the same financial year end.
The tax strategy has to be published on the internet as a separate document or a self-contained part of a wider document, and should remain accessible to the public, free of charge for the period until the next year’s strategy is published.
After this, the strategy must not be published less than nine months, or more than 15 months, after the day on which the previous strategy was published.
HMRC says the strategy must set out the business’s approach to risk management and governance arrangements in relation to UK taxation; its attitude towards tax planning (so far as affecting UK taxation); the level of risk in relation to UK taxation that it is prepared to accept; and its approach towards its dealings with HMRC. There is no requirement for publication of the amounts of taxes paid.
There are penalties for failing to publish the tax strategy within the prescribed period, or if it is judged to be materially incomplete.
A warning notice will be issued for non-publication on or after the first day of non-publication. This will allow 30 calendar days for publication, after which a penalty of up to £7,500 will be charged (consistent with the Companies House late/non-filing penalties).
If there is still no tax strategy published after another six month period, HMRC will be able to issue a further penalty of up to £7,500. Following a second penalty, HMRC will be able to issue further penalties of £7,500 on a monthly basis after that.
In instances where the information published does not remain accessible free of charge for the prescribed period, HMRC will issue a warning notice giving 30 calendar days for the business to rectify its publication. There will then be the same £7,500 penalty regime.
Businesses which are unable to publish are advised to discuss the situation with their CRM. They will be able to appeal any penalties, in line with HMRC’s existing penalty appeal processes.