Key HMRC regimes central to ensuring your business's tax compliance

Tax governance is a vital aspect of appropriately managing business risk and involves the establishment and maintenance of appropriate strategies, mechanisms and procedures that enable you to make informed tax decisions and ensure ongoing compliance with your tax obligations.

By approaching tax governance proactively, you can identify and address issues pre-emptively. In doing so you mitigate business risk and avoid the potential financial and reputational risk that often results from HMRC enquiries and investigations. As importantly, you also ensure the ethical conduct and adherence to governance principles which can have a significant impact on business critical stakeholder opinion and the resulting impact that changes in opinion could have for performance, growth and access to capital.

HMRC’s efforts to close the tax gap, which has signalled an increased likelihood of enquiries and investigations, only seeks to reinforce the vital importance of tax governance. Therefore, in this article, we provide a summary of the key HMRC tax governance regimes that UK companies need to be alert to and considering when ensuring long-term tax compliance.

Tax Strategy

A business must publish a tax strategy if it is a UK group, sub-group, company or partnership and in the previous financial year turnover was above £200 million and/or the balance sheet was over £2 billion.  The tax strategy must be published by the end of the first year to which it applies. For full information on whether you need to publish a tax strategy, HMRC provides full guidance here. A business does not have to publish a tax strategy for a year when it is no longer within the regime, but the last tax strategy that it published must remain accessible for free for at least a year from the date it was published (typically a link on your website).

The strategy must be approved by your Board of Directors and be consistent with the business’s overall strategy and operations. The tax strategy itself must outline the business’s approach to UK taxation, addressing a number of specified areas:

  • the extent to which it participates in arrangements which could be considered tax planning
  • the approach to risk management and governance arrangements in relation to UK tax
  • the level of business risk associated to UK tax that the group is prepared to accept
  • the business’s approach to communications and relations with HMRC

This strategy must be revisited annually, and made available in the public domain – for this reason, it does not require you to publish any information that could be commercially sensitive.

Non-compliance with the regime attracts significant penalties – up to £7,500 for not publishing a tax strategy, and additional penalties of the same amount for continued non-publication.

If your business is within the threshold of the scheme and you have not yet published a tax strategy within the time frames set out above, there is a risk that HMRC will issue late publication penalties. Speak to your tax advisor or one of our tax team, using the form below, if you believe that this applies to you.

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Senior Accounting Officer (“SAO”)

 The Senior Accounting Officer (“SAO”) regime was introduced in 2009 and is designed to ensure that large companies (meeting broadly the same size criteria as those required to publish a tax strategy i.e., above £200 million aggregate UK turnover and/ or a balance sheet of above £2 billion considering UK companies in aggregate) take reasonable steps to maintain “appropriate tax accounting arrangements”.

The SAO is the director or officer of a company who has overall responsibility for the company’s “tax accounting arrangements”.  Tax accounting arrangements cover the end to end process from the initial data input into accounting systems to arriving at the numbers which form the basis for completion of the tax return.  This includes the adjustments, data extraction and analysis which enable the completion of the returns and all of the people involved in the governance and operation of these various stages.  “Appropriate” tax accounting arrangements must allow the company’s tax liabilities to be calculated accurately in all material respects.

Under the regime, the SAO must certify on an annual basis that tax accounting arrangements are appropriate, or if not, provide further explanation (a “qualified” certificate).  In addition, HMRC expect the company to hold adequate documentary evidence in support of the certification filed.

Failure to comply with the regime attracts penalties of £5,000 per offence, some of which are levied on the SAO personally (although in practice the company will often indemnify the individual for this).

Corporate Criminal Offence (“CCO”)

The Corporate Criminal Offence (“CCO”) regime i.e. “the corporate criminal offence of the failure to prevent the facilitation of tax evasion legislation”, to give it its full title, has no de minimus so applies to all UK companies, be that a solely UK trading business or an overseas entity doing business in the UK. There are two separate criminal offences associated with the regime, the first relates to the evasion of UK tax and the other relating to evasion of foreign tax.

CCO requires a company to consider not only its own internal practices, but its interactions with employees and third parties e.g. customers and suppliers, in so far as there could be an opportunity to facilitate tax evasion. The legislation requires that as a minimum, a company has a written policy which is proportionate, based on a business risk assessment undertaken.  HMRC will also want to be satisfied that the policy has board level buy-in, has been distributed and understood by the workforce at large, and that it is revisited periodically.

The legislation is closely aligned to the Bribery Act and penalties for non-compliance are severe and include the potential of an unlimited fine, a public record of the conviction and the resultant reputational damage. HMRC is conducting CCO investigations – as at the end of June 2023, HMRC had nine live investigations.

HMRC have provided extensive guidance on compliance with the regime including six key steps to ensuring you’ve put reasonable procedures in place, these are covered in our article on the necessary steps and reasonably procedures to avoid falling foul of the CCO.

Are you an international business with operations in the UK?

Businesses operating internationally are often large, and therefore may be caught within these regimes, even if UK operations aren’t particularly significant for the Group overall.  If you are headquartered overseas without a significant UK finance function, or UK expertise at group level these additional compliance obligations can get missed.  This risks significant penalties, as well as putting the Group on HMRC’s radar more generally, and perhaps involving a ”risk review” if the Group are deemed to be “non-compliant” as a result.

While the regimes are all UK-centric, they draw on Group level policies and procedures and therefore will likely need input from senior individuals within the organisation to ensure what is being provided to the UK tax authorities is consistent with what is being done elsewhere.

Our specialist tax team can support you in the preparation and review of your company’s tax strategy, review both existing SAO policies and procedures and CCO documentation and procedures in order to highlight any high risk areas and provide recommendations on advised or necessary improvements.

If you would like support in understanding and updating your tax governance, contact our specialist team using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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