The UK tax environment has changed significantly in recent years, with some of the substantial changes being in relation to Tax Governance. Like many other jurisdictions across the globe, the UK has placed an increased focus on requiring corporates to disclose more information in respect of their taxes, with the ultimate aim of improving taxpayer behaviour in relation to tax planning, driving an increase in companies’ level of governance and risk management over tax and increasing public transparency over all taxes.

This article seeks to set out which corporates are impacted by the UK rules and to highlight some of the key areas that need to be addressed from a UK Tax Governance perspective, including the Senior Accounting Officer legislation, Country by Country Reporting, publication of UK Tax Strategy and the Corporate Criminal Offence legislation.

Whilst there are various notification and filing obligations which are required to be fulfilled, the obligations under the legislation do not stop there. It is fundamental that corporates step back from solely considering their compliance obligations and critically analyse the procedures and policies in place to support their notifications and filings made under the applicable legislation.

Senior Accounting Officer (“SAO”)

The UK SAO legislation has been in place since 2009. The rules (contained within section 93 and Schedule 46 of FA 2009) require qualifying companies to appoint a Senior Accounting Officer who’s main duty is to ensure that the company establishises and maintains “appropriate tax accounting arrangements”, i.e. to ensure that tax is calculated and disclosed correctly in all material respects in the relevant tax return.

The taxes within the scope of the rules are corporation tax, VAT, PAYE, stamp taxes, customs and excise duties (including air passenger duty), petroleum revenue tax, insurance premium tax and the bank levy.

Not all corporates fall within the rules and the qualifying criteria are set out in the table below.

Qualifying Criteria
	Turnover	Balance Sheet	Deadline
Senior Accounting Officer (“SAO”) Effective for accounting periods commencing on or after 21/7/09	UK incorporated companies (alone or aggregated with companies within the same group) which had turnover of >£200m in the previous financial year	UK incorporated companies (alone or aggregated with companies within the same group) which had balance sheet gross assets of >£2bn in the previous financial year	Annual notification and annual certification – not later than the end of the period that is allowed by the Companies Act 2006 for filing the accounts

“Tax accounting arrangements” are defined in HMRC’s guidance as:

• The framework of responsibilities, policies, appropriate people and procedures in place for managing the tax compliance risk, and
• The systems and processes which put this framework into practice.

In order to determine whether there are appropriate tax accounting arrangements in place and in advance of making the certification, areas the SAO should consider include:

• if the business can articulate their tax risks and provide robust evidence to support compliance (both on a real time basis and as the basis for the certificate)
• if there are established processes for monitoring and reporting on whether the tax accounting arrangements are fit for purpose throughout the year
• what progress has been made addressing any issues found in prior years
• if the processes in place enable the business to identify weaknesses which could have led to a material error or inaccuracy, even if in fact no actual error arose
• if proper account is being taken of any changes in their business or new legislative requirements

In the case of non-compliance, penalties of £5,000 each are chargeable (in the absence of a reasonable excuse) as follows:

• failure to notify the name of its SAO (corporate penalty)
• failure to meet their main duty (though an SAO may not be subject to a penalty if they have made reasonable efforts to rectify shortcomings) (SAO personal penalty)
• failure to give HMRC a certificate within the required timescale, or they provide a timely certificate that contains a careless or deliberate inaccuracy (SAO personal penalty)

Country by Country Reporting (“CBCR”)

More recently, and, like many other countries worldwide, as part of the Base Erosion and Profit Shifting (“BEPS”) Project, the UK has implemented CbCR. The UK CbCR legislation (contained within The Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016 and The Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) (Amendments) Regulations 2017) require multinational enterprises (“MNEs”) to provide information on their global allocation of profit, taxes paid, and certain indicators of economic activity among the countries in which they operate.

Not all corporates fall within the rules and the qualifying criteria are set out in the table below.

Qualifying Criteria
	Turnover	Balance Sheet	Deadline
Country by Country Reporting (“CbCR”)	Global consolidated turnover >€750m in the previous financial year	N/A	Annual notification – by the end of the accounting period
Effective for accounting periods commencing on or after 1/1/2016			Annual filing of UK CbCR (where required) – within 12 months of the end of the accounting period

What was initially considered a compliance burden has evolved because the breadth of information provided under CbCR can enable any relevant Tax Authority to very quickly analyse and understand the level of activity, profits, taxes and substance in each jurisdiction. Therefore, it is essential that businesses assess their structure, operations, supply chain, ensuring that their internal systems are set up to enable the correct collection of information and that the allocation of profits per jurisdiction reflect the real operations and risks of the multinational, such that it can stand up to scrutiny by any Tax Authority.

The penalties for non-compliance with the CbCR notification and filing requirements as follows:

• failure to notify / file – £300 per UK entity plus £60 per day if an assessment is raised and failure to notify continues (increasing to £1,000 per day after 30 days)
• failure to make a correct notification / filing – up to £3,000 per UK entity if inaccurate information is knowingly provided to HMRC and for a failure to correct once inaccuracy is identified.

UK Tax Strategy Publication

Many businesses may already have implemented a tax strategy which aligns the tax goals within the organisation with their other business goals, however, there is now a requirement for certain companies to publish their UK tax strategy online (by virtue of para 16(2) and para 25(1), Sch 19 Finance Act 2016).

Not all corporates fall within the rules and the qualifying criteria are set out in the table below.

Qualifying Criteria
	Turnover	Balance Sheet	Deadline
Publication of UK Tax Strategy	Same as SAO threshold (>£200m UK turnover) / Same as CbCR threshold (>€750m global consolidated turnover)	Same as SAO threshold (>£2bn balance sheet gross assets)	Publication – by the end of the accounting period for which the company qualifies

The UK tax strategy is to be published on the corporate website annually and is required to cover four areas:

• The approach of the UK group to risk management and governance arrangements in relation to UK taxation.
• The attitude of the group towards tax planning (so far as affecting UK taxation).
• The level of risk in relation to UK taxation that the group is prepared to accept.
• The approach of the group towards its dealings with HMRC.

If corporates fail to publish an identifiable UK tax strategy or publish one with incomplete content based on the areas outlined above, HMRC can charge a financial penalty of £7,500 (increasing over time).

The Corporate Criminal Offence (“CCO”) legislation

An article on UK Tax Governance would not be complete without mentioning the new CCO legislation contained within the Criminal Finances Act 2017. The CCO legislation became effective on 1 October 2017 and applies where a relevant body fails to prevent an associated person from criminally facilitating the evasion of tax.

Importantly, the provisions can apply to any UK entity within a corporate group by virtue of the fact that the regime has extraterritorial scope such that it applies to both:

• the evasion of UK taxes; and
• the evasion of non-UK taxes where an entity has a UK nexus and the dual criminality test is met.

Whilst there are no HMRC reporting obligations for corporates to comply with, these provisions apply to organisations regardless of size and therefore it is critical for all businesses to consider how the existing financial crime procedures and tax conduct related controls can be aligned to the requirements of the CCO legislation and also demonstrate that it has put reasonable procedures in place (which can provide a defence under the legislation).

In order to assist businesses in determining their approach under the CCO leislation, HMRC have developed guidance that is set around six guiding principles:

• Risk assessment
• Proportionality of risk based prevention procedures
• Top-level commitment
• Due diligence
• Communication (including training)
• Monitoring and review

The HMRC guidance provides key procedures for each of the principles but acknowledges that the approach for each business will differ.

As with the other measures noted above, there are penalties – in the case of CCO legislation, the penalties are unlimited.

What should businesses be doing to ensure compliance and demonstrate robust UK Tax Governance?

In light of the substantial changes regarding UK Tax Governance, businesses should be performing a holistic exercise to determine the quality and relative maturity of their tax function, their tax control framework, and overall tax governance in their business. Businesses need to focus on identifying how tax is currently governed to facilitate a targeted conversation about where the business needs arise and the appropriate actions required to improve.

With the penalties for non-compliance being high and undoubtedly increasing HMRC scrutiny, businesses really need to put their focus on ensuring that they are compliant with their obligations.

However, and critically, it is not just the filing of the required documents with HMRC that is important. Everything that is filed needs to be supported by robust evidence. HMRC have the power to look behind the documents filed and seek further information so ensuring there are documented policies and procedures in place is of the utmost importance.

PwC is hosting a breakfast seminar in our Belfast offices on Tuesday 27th February 2018 which will address each of these areas in more detail. If you are interested in attending, please feel free to get in touch, using the contact details below.

Sarah Fitzgerald is a Senior Manager with PwC and a Chartered Accountant and Chartered Tax Adviser.

Email: sarah.a.fitzgerald@pwc.com