HMRC has today (March 31) published draft guidance on the new legal requirement for businesses to publish a tax strategy including their approach to tax planning and other sensitive issues (outline below).
Heather Self, Partner, of international law firm Pinsent Masons comments: “This is going to impact a whole swathe of UK businesses and not just the multinationals where most of the political attention over corporation tax has been focused. For example, this will force many of the new challenger banks and younger UK technology companies to start reporting on their tax strategy even if that company pays no corporation tax. It also applies to partnerships so we will see the bigger law and accountancy firms having to comply”
“Large businesses are already burdened by enormous reporting and governance burdens so they are not going to welcome this extra requirement.”
“Whilst some businesses do provide shareholders and other stakeholders with information on their tax strategy, as a whole, they would prefer to keep this on a voluntary basis.”
Says Heather Self: “We would advise businesses to be very cautious over what they publish.”
“It is likely that legal and reputational risk involved means that these documents will have to be relatively bland. No business is going to want to have this document used as a stick to beat them.”
"The measure will be counter-productive if it deters businesses from publishing information which goes beyond what is legally required."
“Clearly these tax strategy documents will be scrutinised by single interest groups. There is also the obvious reputational risk if a business's behaviour is seen as being contrary to their stated tax strategy. These are going to be much bigger concerns than the fines that could be involved.”
These requirements would come on top of separate Country -by-Country Reporting requirements which will see multinational groups having to provide tax authorities with a breakdown of their activities and the taxes paid in each jurisdiction where they operate.
The tax strategy – which must be published on the internet- must set out the:
(a) approach to risk management and governance arrangements in relation to UK taxation
(b) attitude towards tax planning (so far as affecting UK taxation)
(c) level of risk in relation to UK taxation that it is prepared to accept
(d) approach towards its dealings with HMRC
It will begin to affect businesses from this summer - it applies for accounting periods beginning after the Finance Act is passed (usually July).
It applies to groups with a turnover from UK companies of more than £200 million or balance sheet total of more than £2 billion.