There has been growing recognition that the relationship between large businesses and HMRC has become more strained. It was therefore welcome that HMRC and HMT announced at spring Budget 2021 they would conduct a review of large businesses’ interaction with HMRC with a view to improving the relationship. Significantly (and perhaps as a result of HMT’s involvement in the review) a clear link was made that tax administration has an important role to play in supporting the UK’s competitiveness and promoting investment. It is reassuring that ministers are still mindful of this, although improvements in administration are unlikely to compensate for the planned increase in the corporation tax rate to 25% from April 2023.
This chimes with what we see in practice. We have observed that businesses appear to be increasingly hesitant about their dealings with HMRC. Some positions have seemed at odds with established practice or guidance; with extended and opaque time frames; and large businesses outside of the formal customer compliance manager programme finding it difficult to strike engagement with HMRC at the right level. Perhaps some of this should be expected. With an increased interest in global tax issues, tax administrations (and businesses) quite rightly want to maintain a careful relationship, and added to this, the international tax system in a post-BEPS environment is significantly more complex. That being said, the experience can have a knock-on effect on an organisation’s willingness to do business in the UK.
Taking on board many of these concerns, HMRC has now set out its course of action to address them in a publication released on tax administration and maintenance day. The measures include:
- investment in improving HMRC’s guidance and rolling out new “guidelines for compliance” that indicate what HMRC would consider high and low risk approaches in practical situations;
- a new process that will allow businesses to flag long-running enquiries that meet certain indicators, so that HMRC can take steps to accelerate their resolution;
- engagement with stakeholders on compliance best practice, building on ongoing dialogue with industry about transfer pricing enquiry effectiveness;
- improvements to the systems and processes for issuing certificates of residence; and
- reviewing how HMRC can engage with foreign authorities through advance pricing agreements and mutual agreement procedures to minimise double taxation and support cross-border trade.
Business requests that HMRC support certainty by increasing the availability of advance clearances have gone unanswered, however HMRC had downplayed the likelihood of this during the review.
These measures will be welcome, however it is not clear whether they will deliver the “re-set” businesses were hoping for. The proof will be in delivery on the ground which requires all of HMRC to be bought into the idea that their interactions with business can help to support the economy.