UK Tax governance

At Price Bailey, we believe that robust tax governance is a vital aspect of appropriately managing business risk. Tax governance involves establishing and maintaining appropriate strategies, policies and procedures that demonstrate best practice and ensure ongoing compliance with your UK tax obligations. Our professional advice will assist you in ensuring your governance is compliant with HMRC’s three key regimes if your business is in scope.

Below we summarise the key HMRC tax governance regimes that UK entities need to be alert to.

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.

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 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 at1 January 2024, HMRC had eleven live investigations, and a further 24 opportunities under review.
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.

Our expert advice

Our specialist tax team can support you in the preparation and review of your business’s tax strategy, review existing SAO policies and procedures or assist with preparing your SAO file, and undertake a CCO risk review and assist with the drafting of the business’s CCO policy. You can keep up to date on all things tax, whether you are a business or individual, through our Content Hub.