Large Corporates Forum (LCF) meeting

07 July 2006

Attendees:

Corporates:

BP Adam Little (Co-Chair)
British Retail Consortium Raina Miles
UBS Peter McFie
Woolworths Timothy Lloyd
T-Mobile Winnie Huff
Renault Francois le-Maistre
HBOS Graham Mackie
ConocoPhillips (UK) Ltd Chris Gautrey
Unilever Tim Voak
Rolls Royce Mike Sufrin
Schroders Susan Cooper
EMI Group Duncan Bratchel
RBS Graham Halstead
Thomas Cook Ian Watson
ICI Phillip Gillett
Capita Sharon Bowen
Tesco Jonathan Evan-Hughes
Network Rail Jane Seabrooke

Speakers:

John Connors Large Business & Employers Customer Unit (LBECU)
Julie Hughff LBECU

HMRC:

David Garlick, Director Large Business Service (Co-chair)
Andrea Hargreaves, LBS (Secretariat)
Richard James, LBS
Ian Stewart, LBS
Iain Macniven, LBECU
Val Hennelly, LBS
Paul Smyth, LBECU
John Roche, LBECU
Val Price, LBS
Angela Brown, LBECU
Annmarie Franks, LBS
Ajit Philipose, LBECU

Minutes / matters arising

The minutes of the last meeting were agreed and there were no matters arising.

Action Point 1/May – Questionnaire to be issued to members about the further development of the Large Corporates Forum - Completed.

Action Point 2/May – Once feedback received, a discussion paper will be developed to take forward issues, areas of concern and ideas for improvement – Only 12 questionnaires received to date so still work to do. Members were reminded to send their forms to Andrea Hargreaves, Secretariat – Taken Forward.

Action Point 3/May – Members interested in belonging to a Working Group to let Secretariat know – Completed in part (further questionnaires may identify others).

Action Point 4/May – Members to let Andrea know if they are interested in being a member of a Working Group looking at a ‘Week in Business’ – Completed in part, as above.

Action Point 5/May – The Review of Links to be brought to next meeting – Completed.

Action Point 6/May – A selection of available dates for the next meeting to be circulated with the draft minutes - Completed.

Action Point 1/July – Members who had yet to do so, to return completed questionnaires to Andrea Hargreaves.

Brief Update

David Garlick

David welcomed new people to the Forum; invited from the current reserve list for this specific Forum focussing on the Review of Links. Discussions on topics such as the Review of Links was what LCF was all about and David expressed that this was the Forum members day to contribute to that debate. There was a lot of work to do before the Pre-Budget Report (PBR) in November 2006 to ensure that the right messages were given back to the Chancellor.

The 2006 Review of Links with Large Business (PDF 70K)

John Connors / Julie Hughff, LBECU

John explained that he would not go into the detail of the background to the Review as that had been covered at the last meeting but that he would provide an update on the progress to date and an outline of what he hoped would be achieved by the end of the Forum. The day would be spent looking at particular issues, with members being able to workshop two out of the three issues brought to the meeting. There would be opportunity towards the end of the day to explore other issues. A brief background paper (PDF 25K) on the three issues had been sent to members with the Agenda. Members of the LBECU team working on the Review of Links were at the meeting to help facilitate discussions; business members would lead the discussions and report back in plenary.

Introduction

Since the Chancellor’s announcement of the Review, LBECU have been busy carrying out an initial consultation phase.

Over 100 representatives of large business had contributed, either individually or collectively, the majority were from FTSE 100 or FTSE 250 companies but there were also others, such as those that are Alternative Investment Market listed, regional businesses etc. The focus was very much on the top end of ‘UK Plc’ but it was important that the outcome of the review was fit for the purpose of all large businesses. Also over 25 representative bodies and trade associations had been involved in the discussions.
The initial meeting of the Consultative Committee was held on 30 June 2006. Issues were brigaded into themes such as Clarity/Certainty; Consultation and Dialogue, Operational issues, Professional Standards/Culture; Simplification and reduced administrative burden.
There was a need to understand the perception and reality in behaviours, open a dialogue to help solve problems and develop a culture of progress and, operationally, improve the way we engage with business, provide clarity and certainty, and understand the roles and responsibilities and practicalities of working within the LBS Operating Model. It was hoped to resolve some operational issues through David Garlick, LBS and the Large Corporates Forum.
Some issues touch on tax policy; these were being taken forward with Edward Troup in HM Treasury, including international tax policy.
The Chancellor also mentioned in his Mansion House speech that the Review was an opportunity to look at issues and opportunities to develop a strengthened dialogue between business and HMRC. This was the LCFs opportunity to provide a clear steer in relation to the issues that business had suggested be addressed, it was not an opportunity to put together a ‘wish list’ but one to put together concrete ideas to meet the objectives of the Review. This was a tall order, the next meeting of the Consultative Committee is 11 September and more detail on the emerging propositions was needed in preparation for that meeting.

Outline / Outcomes for the Day

The issues chosen for the workshops were:

Clearances – Current processes; potential for and principles for extended process; practicalities; elements of best practice; benefits of alternative options.
LBS Operations – Roles and responsibilities; authority of Client Relationship Manager (CRM); Sector Lead role; relationship with specialists; negotiations/settlements; continuity and experience; how to build transparency into the risk assessment process; why does it work in some places, is it due to behaviours, personalities of those involved; how do we replicate good practice across LBS and learn from what works well.
Skills/Competencies – professionalism; technical skills; accounting and International Financial Reporting Standards in particular; commercial awareness – feedback that issues include the need for an awareness and understanding that tax is not always, if ever, the driver for business decisions, need to understand pressure on tax department but the focus for today is on understanding exactly what is meant by commercial awareness and practical thoughts on how this can be improved; allocation of resources; interaction with business; examples from business as to how they keep up with the changes in tax law; how to build more trust and transparency

Each group was asked to explore in detail what the business concerns were, potential preferred outcomes with pros and cons for both business and HMRC and the role that business, advisors, professional bodies and representative bodies could play to assist with delivery

Plenary Session

All members felt that they had learnt something during the two sessions they had been involved in.

Clearances Feedback

Both Groups decided not to discuss the Anti-Avoidance clearances. The points arising from the discussions within the two groups and the plenary were:

If HMRC were to provide a more extensive ruling process, what would the process look like – which areas would it cover, principles by which business and HMRC would abide, pros and cons for business and HMRC, best practice from other Fiscal authorities, transparency and consistency.
Business was very much in favour of a more extensive ruling process; tax departments and their Boards like the certainty. Formal rulings should be explored, perhaps with other countries, examples given were the Netherlands, Australia and to some extent Germany. However, there are drawbacks in the time taken to respond; a one-off transaction needing an immediate response due to the potential changing nature of the transaction and may not sit easily within a formal process. A formal process may also make business and/or HMRC more cautious therefore potentially less useful.
An area where business would like to have a formal process is in the area of valuations; getting them agreed before transactions are made. This is an area of current backlog.
There was a balance between consistency and authority and business having the confidence in their Client Relationship Manager (CRM) to make decisions. CRMs need to be empowered to speed up clearances but it is appreciated that issues would need to go up through Sector Leads and potentially, Head Office. Care is needed, though, not to make the process too bureaucratic.
It was thought that a Code Of Practice would be required to cover: The issues that will be subject to the clearance; the process for referring ‘up’; Effect of a clearance – precedents etc; Publishing of rulings (if that’s the way to go). There would need to be a review process built in to ensure consistency and the process should be available to all to ensure that there was transparency.
Code of Practice (COP)10 did not cause any problems as such, dealing as it did with new legislation; it was applying old legislation to modern business processes and transactions where problems arose and the ability to get certainty in these circumstances is subject to the relationship of the business with HMRC and the attitude of the CRM. While COP10 is appreciated by business, it was felt to be too limited in both time limits and areas that are included within the scope.
Having informal clearances was beneficial as this meant working within real time. Benefits were to both HMRC and Business; HMRC because it gives them early notification of business thinking and business because it provides real-time certainty. This also meant that responses were given in good time. There still needed to be a written record of the decision although this could be more informal than a COP10-like arrangement, perhaps in the notes of the meeting. It was felt that informal clearances depended upon the relationship with the CRM, works well if the relationship is good although this was not always the case.
Caution was needed when giving clearance rulings due to communication between businesses, precedents may be created where another business wants the same ruling. Wording would be extremely important. There needed to be a clear escalation route where conflicting rulings were identified.
Publication of rulings could be an option but not if this brought in further bureaucracy. The question of where to publicise was also raised – tax bulletins or somewhere specifically for rulings, how accessible would the information be. Also maintaining the anonymity of the business concerned may not be that easily done, quite often there can be only one or two businesses that could have asked for specific rulings.

Points to take away:

Extension of formal clearances should be explored but the introduction of further bureaucracy should be avoided.
COP10 was generally viewed positively but the types and timing of rulings covered should be reviewed and relaxed/extended.
Publicising rulings gained mixed responses with the potential problems associated with it outweighing possible benefits.
A Code of Practice around rulings could address concerns about transparency.
A formal process in the area of valuations should be considered.

LBS Operations Feedback

The areas covered by the Groups were:

What clarity is required about the CRM and Sector Lead role, main areas of concern, do businesses want specific agreements with CRMs/HMRC, managing customer interactions, negotiations/settlements, how to encourage trust, assessment and measure of success of CRM, business perspective on role of Sector Lead, continuity v career progression:
There was uncertainty about the role of the CRM; were they technical, customer liaison or both – the discussions had clarified that – they were both. The CRM is the tax specialist of one regime, using tax specialists from the other disciplines to enable them to have a ‘whole customer view’ of their business. It was felt that there was value in having this co-ordinating role; bringing together all taxes from all areas within HMRC. However, international issues such as Double Taxation Relief needed direct access to the specialists therefore the CRM would have less control in these areas. CRMs also had no control over Treaty clearances – it was felt that CRMs should be able to intervene in speeding up the process where at all possible.
There was some concern about the interplay between all taxes and the ability of the CRM, who understood one regime, being able to make decisions about taxes they are unfamiliar with.
There was recognition that a CRM cannot be all things to all people and there are limits on what they can achieve in areas where they are not specialists. They must be able to delegate authority to their team members as appropriate.
The role of the Sector Lead included actioning issues on a sector basis; providing an opportunity to share knowledge and experience across sectors therefore bringing consistency of treatment; Sector Leads also have a technical role as well as the sector responsibility; they also provide coaching, guidance and consistency to the CRMs in their sector and line manager.
There was little understanding of the structure below CRM. There needed to be an integrated team, this may mean working differently and perhaps also working with business.
It was essential that the CRM understood the business. Handover/succession planning was important to ensure that successors did not have to start the business learning from scratch.
A suggestion was made that perhaps CRMs and people from industry should get together to pull out the learning.
There was concern about the level of authority in relation to financial limits for resolving issues – would tax specialists have authority and therefore deal with the business direct or would the CRM need to agree first? At what point, if any, would the Sector Lead need to be involved? Businesses needed to understand the authority limits; this needs to be defined. Linking through to the earlier discussions on clearances, CRMs needed to have the authority to give rulings.
There are lots of examples of good practice, HMRC need to be pro-active in identifying them and then educating others.
CRM should have the ability to close issues even when dealt with in a different area. If they have no right of veto, this cannot be achieved. Similar to former Case Director role – what is different now? If issues are not progressing there should be a point where the CRM takes a key role and should be able to intervene.
Measures of success include contribution to sector and LBS objectives, feedback from businesses, benchmark by business against the former Case Director and National Business Manager role, success of risk assessment and gaining an independent view as done within the pilot. On this last point it was confirmed that the Sector Leads would pick one business from their sector each month to get feedback about the CRM and interactions with HMRC. This would be a rolling programme which should build up a rolling picture for the Senior Management Group.
CRMs should share the HMRC view of the Group with business to ensure it is correct and identify further additions. Shared Workspace should help.

Points to take away:

Further work is required to ensure business understands the role of the CRM and Sector Lead, the structure beneath the CRM also requires sharing with business.
Bringing business and CRMs together to share experience and learning has potential
CRMs should be able to speed up Treaty clearances where possible
Effective handover/succession planning was important
There needs to be clarity over authority of CRMs in relation to financial limits and clearance rulings
HMRC/LBS need to learn from best practice

Skills/Competencies Feedback

There was then a discussion about commercial awareness and specific concerns about technical competence and resource levels, how to maintain professional standards, working more effectively to understand business issues and accounting issues how to achieve more cross-working between HMRC and business, greater transparency in culture and relationship:
Members generally felt that there was a good level of commercial awareness within LBS and this had been built over a period of time. There were pockets where this was less so, requiring a need to share experiences and knowledge. Examples given included issues where information was being requested that was onerous and time-consuming for the business or information that could breach commercial confidentiality. Commercial awareness was thought to be as much about mindset as it was about knowledge.
There was a concern that there was less commercial awareness within ‘policy’ teams and that policy was being formed which betrayed a lack of commercial understanding and appreciation of implications to business; it was felt that business could be involved far sooner so that these could be highlighted and worked through before implementation. Also policy makers should involve Sector Leads and CRMs in policy development. This seems to be implied within the Operating Model but the onus should also be on policy to seek early feedback from CRMs. It was felt that Sectorisation will help to facilitate this.
There should be consideration of seminars on new areas of legislation or to provide information on the implementation of new tax rules. Businesses were very willing to be involved in consultation but this waned when there appeared to be a lack of listening or reasons why views are not taken forward.
Going forward, to ensure that professional standards are maintained, build on what is already there. Suggestion that new CRMs and team members should shadow experienced officers so they can see what a good relationship looks like, share best practice, and introduce mentoring.
CRMs need to stay with the business for around three to five years, a quick turnaround is seen as unhelpful as commercial awareness and understanding of the business does not develop in a short period of time. There is a need for continuity to improve leverage. If this is not possible, there needs to be continuity within the business team and not all levels of staff should change within a short period of time.
Secondments to business had not generally taken place as had been envisaged following the 20801 Review, although there have been exceptions such as a Schedule E person seconded to the Payroll team in a business. It was felt inappropriate for tax departments to have HMRC people working there and there were question marks over how effective secondments to other non-tax departments would be.
HMRC initial technical training is thought to be very good, the problem is in the maintenance of skill levels. There were some perceived gaps; company law and treasury being two areas. With the ever increasing complexity of tax law, it was felt that there would be a greater need for specialists; this was already happening in business. It was understood that CRMs can’t know everything in depth but they should have an awareness of all areas.
HMRC staff need to be trained at the time there is a change of law rather than when the changes start to be reflected in returns, business need to know as soon as the law changes because this will influence how items are treated in the accounts. There is scope in carrying out joint training with business.
Consultation with business was important but there was a need to be careful that business was not overloaded. Timing was also important; often consultation appeared late in the day when making changes would be difficult or when timeframes were too tight for appropriate consideration of the issues. There was also not enough thought about the system changes that would be required as a result in a change to legislation, there were lead in times for these to happen.
There seems to be a lot being asked of the CRM; they can not be expected to know it all but should have access to people who know the answer to the questions they are being asked.

Points to take away:

Earlier involvement of business in policy changes is required. Policy needs to be proactive in seeking the views of CRMs at an early stage in policy development.
Where views from business have been sought but not actioned, the reasons why should be published to encourage continued business involvement.
Handover/succession planning is important, as is the need for CRMs to stay with the business for three to five years; this will ensure continuity for business and enable CRMs to develop commercial and business awareness
While initial technical training was thought to be good (although some gaps in company law and treasury were raised); there was a need for ongoing technical training and maintenance of professional standards.
Training on changes to the law should happen at the time the law is changed so that CRMs can enter into discussions with business about the implications

John Connors thanked members for their input; some of the points raised were at a strategic, departmental level and would need to be fed into the Review of Links, while others would need to be taken forward by the LBS and LCF.

Other Key Themes

Relationship – Transparency & Trust

Was there a need for the development of a Framework to set out the relationship between business and HMRC? Consultation so far has raised differing opinions.

The LBS Operating Model is the Framework for LBS and how it will work with business, including what it expects from business. The New Compliance Process (NCP) only had limited numbers with formal Frameworks although many businesses worked along the same lines. Members who had Framework Agreements found them to be very good; they focussed business and HMRC on the issues at hand, improved working issues so that they were very near real time and provided a clear message about how we work together.

A Framework in this context would be between ‘big business’ as a whole and HMRC, similar to a Code of Practice. It was agreed that further consideration of the pros and cons of such a Code are required and the Review team propose to consider this and report back in due course.

Strengthened Dialogue & Consultation

The review was looking to build on the work of the Business Tax Forum, looking at the role of consultative forums – are they effective and efficient, also looking at the relationship with the CRM. HMRC needs to listen to the views of business and, when given but not acted upon, there needs to be discussions why.

Greater Clarity via Better Guidance

HMRC needs to ensure that published guidance is fit for purpose; a review is underway to identify areas where better guidance is needed from a large business perspective. Members generally thought that HMRC guidance was good but that the timing of updates needed to be improved; some guidance currently available is out of date.

Simplification and Reduced Administrative Burdens

Although the large business population was small in percentage terms, it contributed to over 50 per cent of tax into the Exchequer. Consultation had highlighted 85 provisions that cause a burden to large business. There were specific issues such as those relating to international rules, for example Transfer Pricing, Controlled Foreign Companies but also employers’ issues, such as the approach to dispensations.

Better guidance, administrative burdens and consultation processes will be discussed at a meeting of the CBI Tax Committee on 14 July.
It was also noted that to date businesses have not raised many concerns in relation to indirect taxes, Partial Exemption being one exception although this will be discussed at the CBI Indirect Tax Committee.

Conclusion

This Review gives business the opportunity to influence the relationship and interaction between HMRC and big business and to address some of the complexities which arise in working within our tax laws. The Chancellor announced this Review as a result of concerns raised, the burdens to large business and the resulting impact for competitiveness of the UK. Members raised the following as additional concerns:

Company Car rules – complex proposals for dealing with first year CO2 emissions and the extent to which business are involved in this consultation
Degree of complexity in Anti-Avoidance legislation
Stamp Duty – administrative issues which add to the burden on business
The tone from the top of HMRC when discussing large business sometimes makes effective working relationships difficult; an example from Accountancy Age (6 July 2006) was mentioned.

In final summary David Garlick and Adam Little thanked members for their contribution; highlighting the tone of communications coming from HMRC as a key area to be taken forward. Adam also expressed that he believed the LCF was an effective consultative forum, David appears to listen to what members are saying and members are keen to contribute. He felt that this, and maintaining the right focus, would enable the Forum to achieve its objectives. David finished by announcing his retirement at the end of the year. Melanie Dawes from HM Treasury would be succeeding him as Director of the LBS. She will formally take over on 1 January 2007.

Next Meeting Dates:

26 September 2006
7 December 2006