Tax Governance: additional obligations for businesses
With an increasing focus on tax transparency, it is critical that businesses be seen to be acting on the front foot to avoid unwanted scrutiny and the financial penalties that can come with it.
As 31 December fast approaches, many companies with calendar year ends will be finalising and submitting their company tax returns to HMRC. At this time of year, there are some additional obligations and deadlines, which companies may need to consider along with the standard filing of the CT 600 company tax return.
Many of the relevant rules depend on figures from the financial statements. Depending upon specific profit or loss account and balance sheet figures, a company could face three further requirements (with a fourth due to come onstream next year). With set penalties in place for non-compliance, it is vital that companies be aware of these requirements and how they might apply to them, in order to make suitable preparations as early as possible and to avoid incurring penalties, which, in some cases, can rise significantly, as well as other negative consequences.
An overview of the key additional reporting requirements to be aware of and associated penalties for non-compliance is set out below. Please note that the table below is for discussion purposes only.
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Reporting obligation | Requirement | Threshold | Deadline | Penalties |
Senior Accounting Officer (SAO) | A SAO’s main duty is to take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements throughout the financial year. A SAO must monitor arrangements and identify ways in which the arrangements falls short of the requirements and remedy them. | UK incorporated companies, which in the years preceding the financial year had, either alone or aggregated with other UK companies in a group, turnover of over £200 million; or gross balance sheet assets of more than £2 billion must notify HMRC of the name of the SAO each financial year. In respect of each financial year, the SAO in his/her personal capacity must provide HMRC with a certificate stating whether the company had appropriate tax accounting arrangements (unqualified certificate) or an explanation where those arrangements are not appropriate (qualified certificate). | Both the notification and certification must be filed no later than the end of the period allowed for filing the company’s accounts for the financial year. | Penalty for the company:
Penalties for the SAO in his/her personal capacity:
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Publication of UK Tax Strategy | A document published on the internet, free of charge that outlines the UK group’s approach to:
| A UK company, group, sub-group or partnership is required to publish a tax strategy if, in the previous financial year, it met either one or both of the following thresholds:
UK companies or groups that do not meet these thresholds but that are part of a Multi-National Enterprise that meets the OECD's Country-by-Country Reporting threshold of global group turnover over €750m are also required to publish a strategy. | The tax strategy must be published before the end of the financial year following the year in which the thresholds are met. The strategy should be reconsidered on an annual basis. | £7,500 for failing to produce a tax strategy by the required deadline rising by an additional £7,500 for failure to produce one within six months following the deadline, and an additional £7,500 for each subsequent month in which no tax strategy is published. |
Country-by-Country Report | Country-by-Country (CbC) Report presents, at a global level, information regarding income and tax paid of a Multinational Enterprise Group (MNE), along with indicators of the location of economic activities. Where the group accounts exceed the threshold in a given year, the group must file a CbC report for the subsequent period (the reporting period). | UK companies in an MNE group with group turnover ≥ €750 million in the year preceding the reporting period may be required to file an annual CbC report to HMRC. Such UK group companies must consider the following reporting requirements:
| The CbC report must be filed annually, 12 months following the end of the reporting period. The notification must be submitted to HMRC within the reporting period. | A £300 penalty can be levied for failing to meet the reporting requirements, with additional daily penalties of £60 levied thereafter. A £3,000 penalty can also be applied for providing inaccurate or incomplete information in the CbC report. |
Uncertain tax positions | The Finance Bill 2021-22 includes a requirement to notify HMRC of uncertain positions taken on VAT, corporation tax, and income tax. An uncertain tax position is where the value of the tax uncertainty is above £5m and it meets one of the following criteria:
An exemption can apply, where it is reasonable to conclude that HMRC already have the information that would have been included in the notification. | The legislation applies to companies (wherever incorporated) and partnerships that meet either or both of the following thresholds in the previous financial year:
Relevant entities must notify HMRC where they have adopted uncertain tax treatments, and which have resulted in a tax advantage (compared with the accounts provision or the HMRC interpretation) exceeding £5m, in regard to corporation tax, VAT or income tax returns filed on or after 1 April 2022. | In respect of annual returns, such as corporation tax, notifications are due on or before the date on which the relevant return must be filed. For returns that are not annual, such as VAT, notifications are due on or before the date on which the last relevant return must be filed for the financial year in question. | £5,000 for the first failure in respect of each relevant tax, increasing to £25,000 for a second failure in respect of the same tax and £50,000 for a third failure in respect of the same tax (within a three-year period). |
Corporate criminal offence of failure to prevent facilitation of tax evasion
A further obligation for companies and partnerships of all sizes comes from the Criminal Finances Act 2017. This legislation provides for the Corporate Criminal Offence where relevant companies or partnerships operating in the UK fail to prevent an associated person (for example suppliers, employees, agents or off-payroll contractors) from facilitating tax evasion. This include any tax in the UK or outside the UK, not only tax owed by the relevant business, and can result in criminal sanctions or unlimited fines. It is a strict liability offence and the only defence available is to have procedures that seek to identify relevant tax evasion risks and implement reasonable prevention procedures in the light of this.
Conclusion
Over recent years, several measures have been introduced to identify companies that persistently engage in aggressive tax planning, or that do not take the risks of tax evasion seriously, which have resulted in numerous additional reporting and governance obligations. The differing requirements across each of the above obligations can create administrative challenges for businesses in implementing the necessary governance procedures, collating data and providing timely information to HMRC. With the increasing focus on providing greater transparency of the tax profile of multinational companies, it is important for businesses to get this right to avoid scrutiny from tax authorities and the financial penalties that come with it.
National contacts
Lucy Redding Partner - Tax
Ian Thomson Tax Senior Manager, Banking & Capital Markets
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