The market drivers changing corporate tax compliance
The consequences of getting tax compliance wrong have always been uncomfortable but numerous developments are increasingly making tax compliance failures a high-risk issue for companies. If audit independence issues have not yet forced you to revisit your tax compliance arrangements and you haven’t overhauled your tax compliance processes and procedures for some time, it is worth considering how you deal with the following:
Staying on top of tax obligations
Whether it is Brexit-driven changes, the pandemic or just the churn of tax changes as we move towards Making Tax Digital, identifying, monitoring and meeting new tax obligations is and ever moving target for businesses. And, of course, all new reporting obligations must be ‘self-assessed’, leaving tax and finance managers grappling with issues as diverse as having to identify the amount of recycled plastic is used in their packaging to reporting their profits on a country by country basis or identifying and reporting where an ‘Uncertain Tax Treatment’ affects their tax return figures. Tax compliance covers an ever increasing spectrum of reporting and for every new obligation, self-assessment puts all the responsibility and risk on the taxpayer.
Then there is the Corporate Criminal Offence legislation which may result in your company facing criminal sanctions if it is unwittingly involved in helping another business avoid tax. The risks of getting involved can arise in many different departments within the company: so policies, procedures and wide staff education exercises are required to prove (in case of a challenge by HMRC) that you are taking the risk seriously and trying to reduce it.
Filing deadlines – the gloves are off
Meeting all the deadlines is hard enough in easy times but now that we increasingly live in “interesting times” the challenge is increasing. For example, increasing interest rates are likely to mean more companies have to file Corporate Interest Restriction returns in future.
Yes, HMRC allowed businesses some latitude during the pandemic but the gloves are off now and HMRC is gearing back up to full enforcement activity and issuing penalties for non-compliance as frequently as it has ever done.
And just meeting filing deadlines is not necessarily good enough alone. Having started with the largest companies through the Senior Accounting Officer rules, HMRC is increasingly expecting all businesses to have good tax systems in place to prove that they are doing the right thing.
For example, if you use contractors, it is essential to keep good records to show how you have considered the off-payroll labour position and a strong audit trail to show you have at least tried to deal with them correctly. If you get the tests wrong for some contractors and fail to deduct PAYE and NIC as a result, the penalties HMRC may charge will be less if you can at least prove you tried to get things right.
Getting the level of detail right
It is always tempting to see tax reporting as an expensive chore so that it become attractive to do the bare minimum in terms of providing information. Indeed, digitalisation of tax compliance might be thought to encourage this, just fill in the numbers that the computer wants.
In some cases that is can be acceptable, but increasingly it will be a high risk strategy. For example, when making an R&D tax credit claim, submitting a detailed report with the claim explaining precisely what the relevant technical innovation your project was intended to achieve and how you have apportioned relevant costs for the claim will be essential to ensure it is processed efficiently by HMRC. There are many other situations were additional detail can also reduce the risk of an enquiry by HMRC and it is still true to say that the easier you make it for HMRC to deal with your tax the better your reputation with them will be.
HMRC is increasingly taking the stance of publicising tax compliance failings: whether this is by naming taxpayers it perceives as ‘deliberate tax defaulters’, those who have used ‘avoidance schemes’ and even those who have claimed (validly or not) under later iterations of the Coronavirus Job Retention Scheme. A compliance failing that leads to being named by HMRC or in the press is likely to prove far more costly to your business in the long run than taking the time to get your reporting right in the first place.
But that doesn’t mean you should be avoiding public tax reporting at all costs. For example, when it comes to gender pay reporting, just reporting the bare numbers on your website is not going to be well-received by stakeholders: it is far better to report the numbers in the context of your improvement and recruitment plans. Similarly, how you report your tax number in your public accounts is something to be handled carefully giving as much transparency as possible to show how the outputs meet with your published tax strategy. Public awareness of ESG (environmental, social and governance) issues and increasingly high expectations can lead to basic report being perceived as a lack of transparency – which may just damage the business’s reputation if picked up in the media.
Making Tax Digital
Digitisation of tax is becoming the norm and it should reduce administrative burden for all parties and help to reduce common human error in tax filings. However, it is important to remember that if automated systems are not engineer correctly and output not sense checked, there is still significant risk of errors going unnoticed. Putting in place smart review processes and external audit routines to validate your systems will be essential to make sure that digital processes remain accurate as data inputs, business circumstances and tax rules change.
Rethinking tax compliance
Given the dynamic market business currently operate in, company tax and finance teams are increasingly partnering with their board to ensure exposure to tax risk is reduced in all business decisions whilst continuing reporting continues as normal. Ensuring the current reporting requirements is a necessity to avoid non-compliance which could impact on companies’ relationships with HMRC in the longer term.
Our approach to tax compliance encourages a fresh perspective, challenging old concepts and preconceptions. Our expertise and experience mean we can provide insights that will help you make the right decision, at the right time. You will also be able to draw on our deep technical knowledge.
Data processes and technology are fundamental to our methodology in that they underpin our ability to provide you with useful insights and advice. Our offering is flexible allowing you embark on transformation of your compliance processes at your own pace.
Speak to us today – we will help you rethink your approach to corporate tax reporting and compliance so that it is effective, efficient, and sustainably fit for purpose.