Under the new guidance, businesses which persistently engage in aggressive tax planning and refuse to engage with HMRC in an ‘open and collaborative way’ will be told that they are at risk of being put into special measures.

There is then a 12-month improvement period for HMRC and the business to work together to resolve issues, at the end of which the business will either have passed the test and will be cleared of any threat of entering special measures or will be put into the special measures regime. At this stage no sanctions are triggered.

Businesses who enter special measures risk sanctions if they demonstrate further instances of aggressive tax avoidance, for example. This could include removing access to non-statutory clearances, removing the defence of ‘reasonable care’ or potentially being named as being subject to special measures.

The special measures period will last for a minimum of two years.

After that, HMRC will conduct an ‘exit review’ to decide whether the behaviours have improved and the business should exit special measures or whether an extension of special measures is required.

According to the guidance, businesses at risk of entry into special measures are likely to be already within one of HMRC’s high risk management programmes and will be told they are at risk of entry into special measure in advance.

There are three triggers for entry into special measures, including behavioural signs, use of avoidance schemes and disputed tax at risk.

The first condition is a so-called 'behavioural' stance, which is likely to be evidenced by HMRC needing to use its information powers to collect information from a company due to non-compliance and the number of times a business’s returns have been found to be inaccurate as a result of failed avoidance or other serious inaccuracies.

The other two measures are evidence of entry into avoidance schemes and signs that there is a ‘significant level’ of tax at risk.

Businesses will be sent a warning notice at the start of the process, setting out the reasons why a designated HMRC officer considers the business as at risk of falling within special measures. This can be withdrawn at any time, and will lapse in 15 months if no action is taken.

Between 12-15 months from the service of the warning notice a designated HMRC officer will consider the continuing behaviours. If the business still shows evidence of the conditions described in legislation the designated officer will issue a special measures notice to the business. This can be withdrawn, and will lapse 27 months after it was served if no action is taken.

If, between 24 and 27 months after the warning notice is served, HMRC still observes no change in behaviours the designated officer will issue a confirmation of special measures notice. At this point, HMRC has the option of naming the business, subject to giving the head of the group concerned the opportunity to make representation about whether this information should be published.

Businesses subject to a special measures notice, who exhibit a further example of the behaviours that have been specified in the warning or special measures notice, will no longer be able to claim an inaccuracy in their return was protected by taking reasonable care. As such the business will be liable for any penalty arising from the error.

HMRC’s guidance states that a business’s entry to special measures is an administrative decision, which the business is able to challenge via judicial review.  All penalties levelled on a business that is subject to special measures are appealable through the normal HMRC appeals process.

The HMRC Large Businesses Special Measures Guidance is available here