Budget 2008 > Business > Varney review of links with large business - Budget 2008 update
 

Varney review of links with large business - Budget 2008 update

Introduction | Progress since PBR 2007 | Overall achievements | Interesting points | Our view

Introduction
Today sees the publication of “The framework for a better relationship” which sets out HMRC’s current progress on implementing the November 2006 Review of Links with Large Business.  The document starts with a foreword from Dave Hartnett, the Acting Chairman of HMRC, and a Business response, from the Large Business Advisory Board.  These emphasise the shared objective to make the UK a better place for business and the fact that whilst progress has been made there is still much to do.

The Varney review looked at proposals in four areas that business had told HMRC would make a difference: certainty, risk management, speedy resolution of issues and clarity through effective consultation.

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Progress since PBR 2007
Since 2007 Pre-Budget Report 2007 HMRC has delivered:

• A pilot extending the non-statutory clearance process and new operational guidance; this facility will be available to all businesses from April 2008.

• Detailed guidance on HMRC’s approach to tax compliance risk management for the largest businesses.

• Risk Reviews of the largest businesses: HMRC have classified nearly 40% of these as ‘low risk’ and closed 79% of its ‘low risk’ open enquiries.  HMRC has identified and deployed specialist resource to high risk businesses, and encouraged businesses to consider their position by defining the benefits of being ‘low risk’.

• The framework for a new approach to transfer pricing, effective from April 2008.

• Research on large businesses’ experience of HMRC, demonstrating an improvement in customer satisfaction for those businesses with Relationship Managers.

HMRC say they have now met their commitment by implementing new processes that will deliver all the recommendations in the Varney review.

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Overall achievements
Overall since November 2006 HMRC has achieved the following:

• Advance agreements (Proposal 1): a new Advance Agreements Unit launched October 2007.  Statement of Practice SP 2/07 sets out HMRC’s service standard.

• Extension of the clearance process (Proposal 2): New guidance and a pilot, leading to full launch in April 2008.

• Statutory clearances (Proposal 3): Summary table and contact details published March 2007.

• Risk management of business taxes (Proposal 4): Guidance and framework published; nearly 40% of the very largest businesses classified as low risk; deployment of resource to the highest risk businesses.

• Transfer pricing (Proposal 5): New framework published, effective from April 2008; transfer pricing specialists and an internal Review Board appointed.

• Employer compliance (Proposal 6): For the largest businesses, cessation of cyclical reviews and the opening questionnaire; focus on dialogue on risks and governance; appointment of employer specialists.

• Relationship management and resolution of issues (Proposal 7): For the largest businesses, clarity on the role of Client Relationship Managers and escalation routes; extension of Relationship Managers to certain other large businesses.

• Resolution of historic issues (Proposal 8): 79% of low risk issues for the largest businesses settled by 31 March 2008; agreed Action Plans in place for the resolution of all open issues by 31 March 2008.

• A new consultation framework (Proposal 9): consultation framework published; consultative forums reviewed and details published on the website; Business Tax Forum mandate and membership refreshed; impact assessment review mandatory for policy and process designers.

• Improving HMRC guidance (Proposals 10 & 11): early consideration of operational guidance now mandatory for policy and process designers; consulting with business where possible; rolling programme to update existing guidance.

• Shared understanding of UK tax environment (Proposal 12): panel of international expertise on tax administration being convened.

• Professional skills and commercial understanding (Proposal 13): new training programme; joint seminars with the private sector; review of secondment initiatives; five days professional development each year is now mandatory for HMRC tax professionals.

• Structured feedback mechanisms (Proposal 14): publication of research on taxpayers’ experience of HMRC.

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Interesting points
Particular points of detail worth noting include:

• It now appears that of the approximately 13,000 large businesses dealt with by HMRC’s Local Compliance, up to 2,000 will have Customer Managers (CMs).  Independent research, including a recent NAO report, has validated this, recognising that the 14,000 large business taxpayers have different compliance needs and risks, and want different levels of contact with HMRC.

• HMRC say the Risk Framework is beginning to make a difference for LBS taxpayers and for HMRC.  HMRC have risk reviewed 97% of LBS taxpayers using the new Risk Review Template. HMRC expect nearly 40% of these businesses to benefit from low risk relationships by 31 March 2008.  

• HMRC have closed 79% of historical lower risk open issues, and are opening fewer enquiries, aiming to reduce the number of corporation tax enquiries open for more than 6 months at March 2009 by 70%. This enables more resource to be used on higher risk issues and taxpayers.

• HMRC have defined the criteria for inclusion in the LBS, and some LBS businesses are now being transferred to Local Compliance, and vice versa.

• HMRC will introduce to large businesses in Local Compliance a risk strategy and guidance based on the LBS model from April 2008.  HMRC will not make assumptions about risk; so initially, if HMRC have not identified ‘high risk’ characteristics, it will treat all businesses as ‘low risk’. By March 2009 HMRC will be able to objectively score the significance of individual risks across all tax regimes, to ensure focussed interventions where needed.

• To improve its understanding of Local Compliance businesses, HMRC will be seeking to significantly improve its knowledge of risk, improving its knowledge management, intelligence information and customer knowledge.

• HMRC are engaging at Corporate Board level, making clear that it will challenge artificial and uncommercial avoidance schemes quickly and robustly.  HMRC say they have successfully recovered significant tax and also influenced high risk businesses to consider their position, supporting them to become low risk.

• HMRC are increasingly challenging what they see as unacceptable planning arrangements. Newly-recruited consultants project manage discrete high risk areas and disclosed avoidance schemes, use profiling to identify undisclosed schemes, and feed into policy and legislative change. Comparable issues are co-ordinated to ensure consistency.

• A new project has been launched to work with business to develop a shared understanding of good governance, processes and systems to support tax compliance.

• A new international technical specialism reaches across HMRC’s operational, economic analysis and policy units. Transfer Pricing Specialists have been appointed centrally and locally.  Specialist training now includes private sector input on commercial awareness and international issues.

• Plans for resolving enquiries within 18 or 36 months (depending on complexity) and draft guidance (endorsed following formal consultation) are being finalised. A new internal governance process is in operation, addressing issues of consistency, resource to risk and delivering wider departmental strategic objectives.

• An HMRC-wide steering group is providing consistency across employment tax matters. HMRC has improved collaboration between employer tax teams and ‘expat’ complex personal return teams and set up a specialist team providing support and advice on Share Scheme issues.

• For LBS taxpayers dedicated employment tax specialists, including a team of new Employment Status Inspectors, will be introduced to answer technical enquiries, deal with employment issues (such as dispensations), provide employer support, and facilitate the early resolution of contentious issues. HMRC are providing dedicated training and focusing technical expertise on complex and high risk businesses. These specialists will form part of the central team facilitated by the CRM.

• For Local Compliance taxpayers HMRC are working towards the delivery of a new employment risk framework which it expects to implement in 2008, including dedicated specialist teams.

• For LBS taxpayers, Action Plans are now in place for 60% of open issues. The number of CT issues open for more than 6 months has reduced by 70%: 79% of historical low risk issues are settled; the number over two years old has fallen by 46%, and over four years old by 51%.

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