The UK is going ahead with a new rule that requires large businesses to publish their UK tax strategy annually.
While many listed companies already voluntarily publish details of their tax strategy, the new law imposes a legal requirement for large businesses to do so and also ensure that the strategy covers UK tax in particular. It will take effect later this year, meaning that a business with a 31 December year end will have to publish its strategy for the first time before 31 December 2017.
What is a large business?
The new rules will impact businesses (both companies and partnerships) with a turnover of more than GBP200 million or a balance sheet total of more than GBP2 billion and these businesses will be required to publish a tax strategy and update it regularly (typically annually). It is anticipated by the Government that around 2,000 businesses in the UK will be caught by this legislation. The regime also extends to multinational enterprises who would be subject to country by country reporting requirements in the UK either in their own right or if the head of their group were UK tax resident. This could therefore catch small UK subsidiaries of large multinational groups and might have a greater impact than expected.
What must a tax strategy contain?
The tax strategy must set out the UK Group's:
- approach to risk management and governance arrangements in relation to UK taxation,
- attitude to tax planning in relation to UK taxation,
- level of risk it is willing to accept in relation to UK taxation, and
- approach towards its dealings with HMRC.
The Government has, however, dropped an earlier proposal that businesses must publish details of their target UK effective tax rate and there is no need to publish information to evidence the practical application of the tax strategy. Many groups currently voluntarily publish a tax policy that deals with the group's strategy in relation to worldwide taxation. While groups can continue to do this, it will be important that the published tax strategy specifically deals with information in relation to UK taxation.
The tax strategy must be published on the internet and can additionally be published in other formats that the business considers appropriate. It need not be in a separate document (e.g., it could be included in the Annual Report) but it must be accessible free of charge and remain available for at least one year after it is published.
If a business fails to publish a tax strategy that meets the requirements of the legislation, then it is liable to a penalty of GBP7,500. A further penalty of GBP7,500 could arise six months after the failure to comply and a further GBP7,500 at the end of each subsequent month of continued failure to publish a tax strategy. However, the Government has dropped the original proposal that a named individual should be accountable for the published tax policy.
What does this mean for your business?
These proposals will increase the level of both public and HMRC scrutiny of the business's UK tax planning, policies and compliance. Careful thought needs to be given not only to the drafting of the tax strategy but also to any particular area of internal risk management and compliance which the business would like to strengthen before the new requirement takes effect.