Have you ever stopped to think about what the tax risks are in your business? What about tax governance?
For directors of many SME’s this isn’t uppermost in their mind, but the larger a company grows, the more important this becomes and for large corporates, this is definitely something that significant attention should be given to.
Tax Strategy
For all businesses, a worthwhile starting point is to think about what their approach to tax risks in the business, and how do they want to act in their dealings with HMRC.
Do the directors want to take a cautious approach, avoiding risks wherever possible, or are they happy to adopt more uncertain tax treatments (which large businesses are required to disclose to HMRC) or perhaps take a chance on risky tax avoidance schemes? How transparent does a business want to be, and does it want minimal disclosures or is it happy to disclose as much as possible?
For larger corporates – those with turnover of over £200m or total assets of over £2 billion, as well as multi-national enterprises with worldwide turnover over €750m – it is a requirement to publish a Tax Strategy Document on its website and update annually.
Many businesses that fall below the threshold nevertheless find the process of developing a Tax Strategy helpful and if published is a signal that they are a professional organisation with good governance.
Senior Accounting Officer
UK companies or groups that have consolidated turnover of more than £200m and/or total assets of more than £2bn not only need to have a Tax Strategy, but they will also fall with the Senior Accounting Officer (SAO) rules.
This requires companies to nominate an individual to take on the role of Senior Accounting Officer, and submit a certificate to HMRC certifying that the company had appropriate tax accounting arrangements in place each year, which means companies have to get serious about their tax data and procedures.
Identifying & Documenting Risk
One of the first steps in managing the tax risks in your company is to identify what risks there are, and whether they are low, medium or high risk. Consider the different taxes that your business pays and the tax returns and other filings that it does. Next look at how robust the processes are which underpin this.
Risks will vary widely across different sectors, and all businesses will be different, but some key risk areas worth thinking about include:
- Contractors & Employment Status
- Transfer Pricing
- Cross border tax issues
- Global mobility & international workers
- Tax reliefs & claims
A business’s tax systems can be an important risk area to consider too, for instance, do the systems in place adequately categorise income and expenditure for tax purposes and identify non-allowable expenditure?
For some businesses certain taxes will create higher risks than others, for instance in the construction industry, the Construction Industry Scheme (CIS) may be a high risk area for some, whereas for partially exempt businesses, VAT may be a big risk area.
Once a business has identified its high risk areas, it can put in place to mitigate this, along with with a tax risk map and procedures to ensure this is regularly reviewed and updated.
Corporate Criminal Offences – Not Just Your Own Risks
You might think that your company has enough to worry about dealing with its own risks, but unfortunately you also need to be vigilant against facilitating the tax evasion of other parties thanks to the Corporate Criminal Offences (CCO) regime. This doesn’t have any threshold so applies to all companies.
It creates a risk of failing to prevent the facilitation of tax evasion of another party by one of your associates (which could be employees, agents or suppliers) in the course of your business activities.
To have an adequate defence, you need to ensure you’ve reviewed your risks from a CCO perspective, have a suitable policy and procedures in place and training for staff. You also need to review your supply chain and conduct appropriate due diligence.
So there’s a lot to think about here, and while it is the larger corporates that have more legal requirements when it comes to tax risk, it is worthwhile for all businesses no matter their size to consider their tax risk position and start reaping the benefits, whether that’s a low risk rating and hands off approach from HMRC, a more attractive proposition for any future purchaser when it comes time to sell your business or just the peace of mind which comes from having a coherent, sensible and informed approach to tax.
