Minutes of Local Compliance Large Business Representatives Forum

Held in Room 3A(S), 22 Kingsway at 10:30 - 13:00

Attendees - Corporate representatives

Lucy Johnson (Carpetright)
Catherine Biggs (Europe)
Julie Raponi (Scapa)
Mike Holland (Beam Global)
Jon Riddle (Communisis)
Raymond Kelly (Wood Group)

HMRC

Naomi Ferguson
Keith Cartwright
Ian Young
Tracy Cottis
Jane Webb
Andy Coe
Angela Brown
Steve Coad
Matthew Powell

1. Introduction

1.1 Naomi Ferguson welcomed those present and thanked them for attending. She provided a brief overview of Local Compliance ('LC'). She stressed the desire of LC to focus more on the needs of its customers and explained the fit between this and the publication of Sir David Varney’s Review of Links with Large Business ('RLLB') in November 2006. She explained that the proposals arising from RLLB have been fully embraced by HMRC and are now being implemented.

1.2 Large Business Service ('LBS') has active consultation arrangements with Large Business, but these were not replicated in LC. LC has also recently started a consultation forum with accountant representatives of the largest businesses in LC, and today’s meeting is the first of this new forum.

1.3 Members were invited to input freely to discussions, and to let HMRC know if the forum is worthwhile, or how it could be improved.

1.4 Agreed that confidences be observed and the forum follow Chatham House rules, whereby comments could be expressed freely and taken back to others but on a non-attributable basis only.

2. Update on RLLB

2.1 Angela Brown provided an overview of RLLB, summarising the origins, the themes and proposals that had arisen from the review and HMRC’s commitment to delivering them. HMRC is on target to deliver on time, expecting implementation of all the underlying processes by Budget 2008.

2.2 HMRC sees that it is not just the mechanics of the review that need to be delivered, but the spirit also, and in order to achieve this, HMRC needs to take the hearts and minds of its staff with it.

2.3 The four themes were outlined: greater certainty; Efficient risk based approach; speedy resolution of issues; clarity through consultation.

2.4 Certainty: consultation in relation to clearance processes has recently closed, with encouraging responses. HMRC would be publishing these responses shortly. Update later in this meeting. HMRC is looking at developing guidance proposals, with planned updates to guidance and a process to run alongside the Budget / PBR process.

2.5 Efficient risk-based approach. Update later in this meeting. Employer interventions are to be much more risk-based, with the removal of programmed cyclical reviews, the withdrawal of questionnaires and a less prescriptive aide-memoir for employer compliance staff.

2.6 Speedy resolution of issues: Plans for the introduction of Customer Managers for businesses within LC are well underway. Update later in this meeting. Clear escalation routes are also being devised and implemented. It is also hoped to have action plans agreed with the business/advisors in place for cases from December.

2.7 Clarity through consultation: HMRC is increasingly involving business and advisers in informal consultation. There will be a total of 27 formal consultations through 2007-08.

2.8 Underpinning delivery of the themes, HMRC also needs to develop the professional skills and commercial understanding of staff. HMRC need to be able to measure progress in delivering the proposals and research has been commissioned to benchmark the experience of business with HMRC.

2.9 Ian Young then gave a brief overview on the LC focus of the RLLB proposals – in particular relating to timing:

  • Risk – strategy developing with rollout of elements from January 2008.
  • Tansfer pricing – consultation document published and changes to guidance as a result of the responses. International Issues Managers (IIMs) have been appointed throughout LC, and envisaged that action plans would be in place for all transfer pricing issues by 31 December.
  • Active management of enquiries – a programmed review of older enquiries and plans for the introduction of action plans.
  • Customer Managers (CMs) – Role definition being finalised. LC piloting training for CMs prior to January launch.
  • Shared workspace – potential being assessed for using this as a communication tool with agents/businesses.

2.10 A significant spike on RLLB rollout projected for January to March 2008.

2.11 Keith Cartwright emphasised that adapting behaviours in order to deliver the spirit of RLLB, rather than just the mechanics, is HMRC’s greatest challenge.The department recognises that it is vital to get the culture right.

3. Professionalism – RLB proposal 13

3.1 Professionalism underpins the delivery of all other RLLB proposals.

3.2 A framework has been developed for a new modular set of tax qualifications that will be externally accredited.

3.3 The need for clear career paths and Continuing Professional Development (CPD) is recognised, and a commitment to both has been in place since April 2007, mandatory for HMRC tax professionals. HMRC is considering how best to deliver CPD. At present six national conferences being delivered by Lexis Nexis.

3.4 A large number of initiatives are being taken forward on commercial awareness. These include new training material on commercial awareness; joint training; secondment / shadowing / mentoring programmes; employing trade sector specialists; consultation; joint engagement events. HMRC needs business volunteers to support aspects of the above.

3.5 Members indicated in discussion that they are very supportive of the above. An issue for some businesses was secondments or shadowing. These may be more acceptable if the HMRC person going into a business was different to the person engaging in the formal tax relationship. HMRC needs to become more proactive outside a formal enquiry. Business people coming in to HMRC was also seen as a good idea.

4. EU Large businesses

4.1 Ian Young provided an update on the LBS/LC population boundary. The key aims were:

  • the largest businesses in the UK will be in LBS
  • the location of a business will be the same for all tax regimes, eg - if CT is dealt with in LBS, then so will VAT, Employer Compliance and Excise
  • there will be a clear and transparent boundary, based on structural criteria

The service that a business can expect to receive from HMRC will be dictated by the needs of the business, not where the business sits in HMRC.

4.2 The benefits arising are that cross tax working should strengthen working relationship, provide greater transparency and certainty and informed risk assessment.

4.3 The LC/LBS boundary will be set so that businesses with annual turnover in excess of £600 million, or net asset value exceeding £2 billion be dealt with in LBS. There are some limited specialist criteria in respect of some sectors where special considerations apply, for example banking, insurance and oil & gas. Other specialist criteria are still being considered. A process will be established to review those cases where the result of applying the general criteria appears wrong.

4.4 All public bodies will be dealt with by a new LC Customer Group.

4.5 The boundary has been set to produce the minimum relative impact in terms of net overall movements and to minimise the business impact. On the basis of the thresholds decided, it is clear that we can expect:

  • a very small net movement of CT work
  • the movement of VAT and Employer Compliance from LBS to LC

4.6 The timing of the moves will fit in with the geographic review being undertaken by LBS. Customer Managers in LC will be allocated to businesses being received from LBS.

4.7 The impact of the timing of the move for a business with a year end of 31 December was discussed. The initial period following the move will involve mainly internal HMRC demands, with new CMs getting up to speed. It is unlikely that there will be a significant impact on businesses in January.

4.8 HMRC is aware of a potential issue regarding businesses close to the boundary, and wants to avoid businesses bouncing back and forth between LBS and LC. HMRC therefore plans, in general, to keep businesses in their location for at least three years after any transfer. HMRC is looking to give similar businesses a universal experience anyway, so location within HMRC should be less of an issue. An example of this is the development of a common risk assessment framework between LBS and LC.

4.9 In a discussion on cross tax understanding from HMRC people it was noted that the new CM is not expected to have a complete knowledge of all taxes but facilitate and co-ordinate the role of the individual tax specialists.

5. Clearances

5.1 Jane Webb provided an update on developments towards implementing new clearances procedures. HMRC design workshops are underway, and external consultation had closed on Wednesday 12 September. The proposed changes are generally welcomed, but there are some concerns.

5.2 Commercial significance test. Consultation responses had recognised why HMRC would need to balance the clearances service with its limited resource, but there were some concerns regarding how the test will be applied. HMRC will want applicant businesses to clearly set out the commercial context.

5.3 Response times. Consultation responses indicated acceptance of the proposed response times, but also that businesses would welcome a fast-track system for requests where response times could cause commercial difficulties.

5.4 Guidance. The provision of more guidance in relation to the information HMRC expects in a clearance application was well received.

5.5 Case studies Consultation responses were mixed.

5.6 Areas of legislation creating uncertainty. Areas of legislation that respondents to the consultation had cited as creating uncertainty, included treatment of the deductibility of pensions; taxation of loan relationships; intangible fixed assets and business taper relief.

5.7 A further issue raised in discussion was that of entity status. It was observed that the size/significance of the subject of the clearance was perhaps more important than the issue. It was suggested that the mindset of indirect tax professionals to clearances needed changing. It was noted that VAT notice 700/6 and Code of Practice ten had led to different treatments of clearances.

5.8 Demand for clearances. Thoughts were that the temptation may be to seek clearance more often, but the ‘genuine uncertainty’ criterion is a limiter. The ‘genuine uncertainty’ principle may restrict the number of clearances. Also more real-time discussion of issues will reduce the need for formal clearances.

5.9 An external Guidance Steering Group is being established, which HMRC intends to meet several times in order to refine the guidance prior to implementation of the guidance proposal. Interested parties to contact Jane Webb.

6. Risk Management

6.1 Andy Coe led a discussion in relation to risk. Proposal four of RLLB calls for a more visible and coherent risk assessment process across L B, and this is being implemented across EU Large businesses.

6.2 HMRC is seeking to establish a common risk framework between LBS and LC. HMRC will direct more of its activity at tackling high risk businesses.

6.3 LBS has a good understanding of the risk status of businesses. LC does not have a complete picture. Categorising the risk status is necessary in order to decide if a business should receive a ‘lighter touch’.

6.4 One possible approach is a ‘presumption of innocence’ and HMRC might assume that businesses are low risk unless it has evidence to the contrary. However HMRC has a duty to inform itself of the risk status of businesses and this could be burdensome to all parties and divert resource away other activity.

6.5 A differentiated approach to high/low risk businesses might create a market in ‘low risk status’.

6.6 Determining risk status is a complex issue. The meaning of ‘low risk’ needs to be very clearly defined. For instance, can a business engaged in tax avoidance be classified as low risk where details of that avoidance are fully disclosed? Who should be doing the work to establish risk status – business, agents or HMRC?

6.7 In a discussion the issue of the value of low risk status were discussed together with the low risk criteria and the difficulties of defining this and setting guidance that would be valid across varying sizes of business and industries. It was noted that high risk does not equal size and complexity, although complexity might bring its own risks. The use of audit as an indicator of risk was discussed, but different experiences of these were noted.

6.8 An issue was raised over additional accountancy fees arising when determining risk status. HMRC would not be looking for criteria that were dependant on the agent’s role.

7. Customer Management

7.1 Tracy Cottis advised that an email trial has now been launched and will run for nine months. It is allowing a range of selected agents access to a dedicated HMRC email address. The trial will allow various factors to be considered including security, timing, content and potential for reduction of other communication methods.

7.2 With regard to the CM role within LC, it is envisaged that:

  • CM’s will be allocated initially to businesses coming from the LBS and then to appropriate cases already within LC
  • training on the new CM role will be delivered through November to January
  • CMs will be in place from January for the LBS exports and for the rest of the qualifying businesses during 2008

7.3 Guidance is to be issued towards the end of the year on the types of businesses to get CMs. This is not expected to be prescriptive, and LC would welcome the views of accountants and business in this regard.

7.4 In discussion on the new CM role and the existing relationships. HMRC advised that the best Inspectors are already providing the CM role, but it is not consistent across HMRC. The CM might be a CT inspector, but the responsibilities of the CM role went further than the individual tax, and included knowledge transfer processes. HMRC will be investing in training of its CMs, and this should add value.

7.5 In discussion, members indicated that they saw development of the CM role as a good thing that would strengthen the relationship between HMRC and business.

8. Enquiry window changes and large groups

8.1 Steve Coad covered enquiry periods in relation to Groups. There were changes in Finance Act 2007 regarding enquiry windows in respect of returns that are filed early, but these changes do not apply in respect of companies that are members of groups other than small groups. This session is to cover the issues that led to the change and the exclusion for larger groups, and also to invite the views of members.

8.2 The objectives of the changes to the enquiry window date were to try to give businesses earlier certainty and finality, and to remove discouragement of early filing. Lord Carter had recognised that the link between the filing date and the enquiry window acted as a disincentive to early filing, and is in nobody’s interest, and he proposed that the link be broken.

8.3 In November 2005, HMRC had consulted on the possibility of joint filing between HMRC and Companies House. Those proposals included advancing the statutory filing date for the company tax return to align with that for delivering accounts to the Registrar. The responses to that consultation had not supported mandatory joint filing or advancing the statutory filing date, and HMRC had decided to adopt a voluntary approach. However, HMRC was still interested in the prospect of voluntary joint filing, and where early filing arose as a consequence, in breaking the link with the filing date.

8.4 Section 96 Finance Act 2007 brought in the break of the link between the filing date and the enquiry window where returns are filed early, but section 96(4) excludes its application to companies within large and medium-sized groups - under the Companies Act definition. The principle reason for this was to protect scope for group based risk appraisal for HMRC in cases where some companies in a group file early but others don’t. Responses to the 2005 consultation suggested that most large businesses did not see much scope for early filing.

8.5 The possibility of a group rule for the legislation had been considered, but there were a couple of key obstacles to this. In the first place there were issues of legislative complexity – in particular regarding matters such as mergers and acquisitions. Secondly, there were issues around the HMRC knowledge base of group structures that would have been likely to have lead to administrative problems. Consequently, a group rule was not included in the legislation.

8.6 HMRC is now looking at what can be offered by way of an administrative practice. There is a synergy between these proposals and RLLB, hence the raising of this subject at this forum.

8.7 A possible framework for the administrative practice might be that:

  • groups would flag up where they intended to file early on a group basis
  • dialogue would then start and HMRC and the business would seek to agree a timetable linked to the dates the returns were filed rather than the statutory filing dates

8.8 HMRC would be looking to offer this initially in LBS and in LC CM cases. HMRC recognised that it would be a little more difficult to do so straight away in non RLLB cases because of problems with HMRC co-ordination.

8.9 One thought was that this would act as an incentive to prepare accounts on time.

9. AOB and closing comments

9.1 The minutes of the meeting will be circulated and published on the HMRC website. HMRC will also circulate terms of reference for the forum.

9.2 HMRC is looking at a date in early December for the next forum meeting.

9.3 Members were asked for comments on the forum, the approach HMRC was adopting, and whether members found it useful. This drew some comments that were supportive and appreciative of the forum, but also comments on general HMRC approaches outside the forum to business. Another observation was the perception issue arising from lumping together Partial Exemption with Tax Avoidance in TAPE teams. HMRC advised that this grouping resulted from the technical nature of the work and this perception was noted.


Matthew Powell
Local Compliance RLLB Project Team
18 October 2007