Understanding and managing tax risk is an increasingly important focus for businesses, given rapidly changing tax laws, the introduction of a corporate criminal offence for tax and constantly improving communication between tax authorities. The financial cost and reputational damage of mismanaging tax risk can be high.
In recent years, a wide range of measures have been introduced in the UK that require businesses to focus on tax governance and risk management. These include the Senior Accounting Officer (SAO) regime, the requirement to publish a Tax Strategy document online, the introduction of HMRC’s new Business Risk Review Plus (BRR+), and the corporate criminal offence of failing to prevent the facilitation of tax evasion.
Having a strong tax governance framework is critical to ensuring a robust approach to tax compliance and tax risk management. Often this requires more than just technical tax knowledge, and incorporates the use of technology, project management and buy-in from the wider business.
The exact nature and scope of the tax governance framework will depend on the size of the business, the industry in which it operates and the level of focus by senior management and tax authorities on tax risk management.
Businesses and senior executives that fail to manage their tax affairs appropriately face potentially significant financial penalties as well as reputational damage.
We support businesses with:
- understanding and stay up to date with the changing tax landscape;
- understanding and documenting the business’ tax risk appetite;
- identifying, documenting and prioritising tax risks;
- designing, documenting and implementing frameworks, processes and controls to mitigate tax risks; and
- ensuring ongoing compliance with tax legislation
Frequently asked questions
What is tax risk?
‘Tax risk’ refers to the risk of financial loss such as. increased tax liabilities, penalties, risk of missed opportunities to structure commercial arrangements tax-efficiently (such as missed Research & Development tax credits, or not maximising capital allowances claims), and risk of reputational damage with stakeholders such as customers, HMRC and shareholders.
How can a business manage tax risk?
In order to manage tax risk, it is important to understand how tax risk can arise. There are two core elements:
- risk relating to tax compliance processes, people and systems; and
- risk relating to tax planning.
Managing each of these risks requires input from various parts of the business. Examples of how tax risk may be managed include:
- using technology and systems to automate processes to remove human error;
- engaging a tax adviser to advise on complex transactions;
- ensuring tax teams are adequately trained and keep up to date with changes in tax legislation;
- undertaking testing of controls frameworks to ensure they are working effectively; and
- using software tools or a third-party adviser to prepare tax compliance workings.
What is the best approach to tax governance?
Each business’ approach to tax governance will be different. The form of tax governance structure that is implemented will depend on the size of the business, the industry in which it operates, the level of focus by senior management and tax authorities, and the size and maturity of the tax team.
For all businesses, however, the approach to tax governance should be led from the top. It is important to have senior leadership buy-in, creating a strong risk management culture.
A best practice tax governance framework should include consideration of both systems and people. It should have a clear approach to ongoing monitoring and review.
What is the Senior Accounting Officer (SAO) regime?
The SAO regime requires qualifying companies to demonstrate that their tax accounting arrangements are robust and appropriate. The SAO regime targets an entity’s tax governance and systems, with a view to ensuring correct tax reporting and payment.
A qualifying company must appoint a SAO who has overall responsibility for the company’s financial accounting arrangements.
The SAO regime applies to UK incorporated companies with a turnover of more than £200 million and/or a balance sheet total of at least £2 billion for the preceding year. UK companies can qualify on a standalone basis or when aggregated as part of a group.
What is the Corporate Criminal Offence of failing to prevent facilitation of tax evasion?
The Criminal Finances Act 2017 introduced two new criminal offences, which are targeted at all corporate entities, partnerships and charities. The Corporate Criminal Offences apply if such an entity fails to prevent its ‘associated persons’ (broadly, anyone acting for or on behalf of the entity) from facilitating either UK or overseas tax evasion.
The only defence an entity has under the Corporate Criminal Offence rules is that it had reasonable prevention procedures in place to stop the facilitation from taking place.
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