The Varney Review, which was commissioned to review the relationship between HM Revenue & Customs (“HMRC”) and large businesses, was published on 17 November 2006. On the same day, Gordon Brown confirmed his intention to implement the proposals in full.

According to the Review, both HMRC and businesses would like to see the following outcomes from the consultation process:

  • greater certainty
  • an efficient risk based approach to dealing with tax matters
  • speedy resolution of issues
  • clarity through effective consultation and dialogue.

In order to achieve these objectives, the Review made the following key proposals:

  • a system of advance rulings
  • an approach to enquiries that concentrates on risk areas
  • a quicker settlement time for transfer pricing enquiriesHMRC making resolution of contentious issues more efficient and less confrontational
  • HMRC taking business perspective into consideration in everything that it does
  • HMRC revising and updating guidance of relevance to large businesses.

Advance rulings

From the pre-Budget Report 2007, HMRC will provide binding rulings across all relevant taxes and by Budget 2008, HMRC will provide a binding view on significant issues both pre and post transaction within 28 days.

It is worth noting that HMRC already provides clearances and rulings under a number of statutory provisions. However, these are often too limited in their application. For example, HMRC Code of Practice 10 (COP10) applies to an interpretation query only in relation to relevant legislation contained within the last four Finance Acts and, in relation to transactions, will only allow a post transaction ruling.

There is concern that the HMRC’s formal ruling office will become “bureaucratic and not sufficiently responsive”. The Review does not suggest any alternatives, but HMRC has stated that it recognises a need for speedy and flexible responses and a consistency of approach.

New approach to enquiries

A new approach by HMRC which will focus on resolving contentious issues “more efficiently and quickly”. Guidance on how this will be achieved will be published by 31 March 2007 with implementation by 31 December 2007.

Quicker settlement time for transfer pricing enquiries

A maximum of 18 months is proposed by 31 December 2007. The average settlement time is currently 36 months.
The new arrangements may not apply, according to HMRC, where the issues are particularly complex and high risk (resolution of these is expected to take around 36 months).

HMRC working with businesses

One of the proposals is that HMRC should take “business perspective into consideration in everything it does”. HMRC appear to be committed to consulting with business before the implementation of significant new or changed legislation or administrative processes. From Budget 2008, all guidance on new legislation will be developed in conjunction with business and issued alongside the legislation.

The review sets out details of how improved communication will be achieved for example, by HMRC adopting a consistent approach to consultation with business.

Finally, the revision and updating of various forms of guidance relevant to large business is proposed. Details of the programme and timetable are to be published at Budget 2007.


The key proposals are likely to be well received, but the difficulties of implementation should not be underestimated, particularly as HMRC are facing budget cuts and organisational change.

The introduction of an advanced ruling system is very welcome and we will update you with the details of how this will operate once guidelines have been published by HMRC.

Successful implementation will go some way towards easing the fears of the business community that the UK is losing competitiveness due to the UK tax system, but it does not address the complexity of the tax system, the interpretation of which is costly and time consuming for businesses and their advisers. Coupled with a headline corporation tax rate of 30%, which is higher than most of the UK’s EU competitors, businesses may continue to look outside the UK for a simpler and more consumer friendly tax environment.