Large Corporates Forum (LCF) meeting 18 June 2007

Attendees:

Corporates:

BP - Adam Little (Co-Chair)
British Retail Consortium - Raina Miles
UBS - Peter McFie
Woolworths - Timothy Lloyd
EMI Group - Duncan Bratchell
British American Tobacco - Ken Hardman
Tesco - Tim Voak
Rolls Royce - Mike Sufrin
Schroders - Susan Cooper
Unilever - Brian Chapman
HHG - Ashleigh Kewney
XL Group of Companies - Mervyn Skeet
Capita - Sharon Bowen

Speakers:

Geoff Dickinson - Head of Risk and Resource Unit, Large Business Service (LBS)
Ian Stewart - National Business Director, LBS
David McGregor - Client Relationship Manager, LBS
Peter Wharrad - Business Customer Unit, HMRC
Angela Brown - Business Customer Unit, HMRC

HMRC:

Melanie Dawes, Director Large Business Service (Co-chair)
Andrea Hargreaves, LBS (Secretariat)
Ian Valentine, LBS
Judith Knott, Business Customer Unit
Iain Macniven, Business Customer Unit
Richard Steele, Local Compliance
Steve Baxter, Internal Audit
Andrew Page, Central Compliance

Welcome, update and matters arising

LBS strategy and performance targets for 2007 – 2008

Approach to Compliance Risk Management for Large Business
Geoff Dickinson, LBS

Geoff thanked those members of the Large Corporates Forum who had been involved in the Risk Working Group and highlighted the LBS approach to compliance risk management for large business, including:

As one of the first parts of the Deptartment to merge, LBS has come a long way since it was formed. The 2006 Operating Model introduced the role of Client Relationship Manager (CRM) and Sectorisation. This year should see the implementation of the new ways of working described in the Model coming into fruition; the Review of Links very much builds on the direction that the Operating Model was taking the Large Business Service.
A time recording system has been introduced that will enable LBS to tie inputs to outputs. This will ensure that analysis of time taken on low risk customers and insignificant issues can be carried out with necessary resource shifts being made as a result.
LBS has a picture of Risk across its customer base and published the Risk Framework alongside the Budget. Further action has been taken to define ‘low risk’ with guidance which is now out in draft; members of the LCF Risk Working Group have been asked to comment. At a suggestion by LCF members, a four page document has been produced that allows staff to focus quickly on the key areas; including a definition of low risk.
Traditionally, the culture within HMRC does not embrace the Department’s belief that the majority of customers want to get their tax affairs right. Work is being undertaken to address this, however, LBS can not do this on its own; customers need to reciprocate and help build the trust needed for effective partnership working.
Low-risk customers should expect a full risk review approximately every two or three years but a balance will be struck between dialogue and interventions to ensure that the needs of low-risk customers are met.
High-risk customers can expect a proportionate response to the level of risks. Whether customers are high or low risk LBS would like to move to real-time working, but also taking into account the associated impact/ cost to customers.
Work is ongoing to review all of the policy and guidance related to risk working in light of the new approach, which will be shared in draft with customers and colleagues. The intention is to phase in the new guidance from the end of June with further publications expected in September and December. During this old activity will be migrated into the new way of working or closed down.
LBS is improving the collection and use of data, particularly in relation to forming a strategic view going forward.
All LBS staff working in compliance will attend a workshop based around the new guidance to work through implementation of the new guidance and changes to existing practice.
As part of the shift in practice, staff are also reviewing existing open insignificant issues, where little tax is at risk.

Corporates raised a number of points:

It would appear beneficial to both HMRC and customers if the large number of insignificant issues that are currently open were settled through negotiation with the CRM. The Litigation & Settlement Strategy (LSS) seems to prevent this unless even the smallest amounts are litigated.
- It was noted that the Strategy does not suggest more litigation and that HMRC expects that issues such as these should be talked through with the CRM to determine a clear strategy for resolution.
It was suggested that, while a 50:50 split would be inappropriate for large issues, it would seem sensible for smaller ones as this would alleviate pressure on both sides. There is a need to clarify the LSS and how it fits with the decision making of the CRMs. Corporates believed the LSS was designed to handle marketed avoidance and doesn’t seem to fit with the resolution of smaller issues.
Some corporates were concerned that they could not be deemed to be a low-risk customer, which in some cases had been reinforced by the CRM.
- It was pointed out that any LBS customer could be low risk; even the most complex, global customers with inherently higher risks could mitigate these through effective governance, processes and systems, ensuring there was open, transparent dialogue with issues being discussed as they arose.
- Members would like this message to be sent out to customers.
The Review of Links suggests an overall behavioural change. LBS needs to ensure that it works on all of the proposals and covers the wider behavioural impacts.
- LBS are reinforcing the cultural message with staff and are clear about the need to highlight it in the context of the technical aspects of the changes.
There is a need to ensure consistency of approach amongst all LBS staff.
- All staff are attending workshops with management where such issues as these are discussed, however, there is a reliance to some extent on the relationship of the CRM with their customers.

LBS 2007 – 08 Challenge
Ian Stewart, LBS

LBS have set out the six key priorties for the coming year as part of the LBS Challenge (PDF 55K), which also address the need to deliver the Departmental Public Services Agreement (PSA) targets and to start to deliver the Review of Links proposals.

Aside from Risk Management which has been discussed, these key priorities are:

Staff Engagement – good communication and the sharing of good practice is essential. While LBS Management Group can set the direction, staff must develop and implement it. This is one of the principles of the Pacesetter Programme that LBS are implement throughout the Directorate.
Performance Management – a performance management project is looking at methods for measuring LBS results, which has already identified measures relating to low-risk customers, reducing insignificant issues and reallocating resource to higher risks.
Project – based working of issues – action plans for resolving issues would be prepared and shared with customers.
Professionalism – a focus on tax professionalism linked link to commercial awareness. Attached is a paper following the Review of Links identifying various methods for HMRC to improve its commercial awareness including shared events, mentoring and Week in Business (WiB), but the latter has received little take-up by business; there is a need to understand why.
LBS Geography – originally based in over 80 locations; there is a need to reduce the number of LBS centres and co-locate staff with colleagues across taxes. The intention is for sectors to be based in two or three locations, with all staff working with a customer in one of those locations. Phased in by 2010, geography plans will be interlinked with HMRC’s wider estates’ programme. Linkd to this is Customer Population where work is ongoing to establish the customer population of LBS, with the intention that if a customer is in LBS for one tax then it will be brought in for all taxes. This will have some impact on customers.

Attendees raised a number of points:

The involvement of customers in the Pacesetter programme with staff, particularly for commercial aspects and the work required to complete a tax return.
- while not previously being included in the Pacesetter Programme, this is being considered in other areas, e.g. the redesigned CRM induction which offers the opportunity for a customer to give an insight into the commercial considerations. Please see Induction Event for New Client Relationship Managers.
- Members believed that it wasn’t just about commercial awareness but also an understanding of the amount of effort that is put into completing a tax return.

AP 01/0607 – calendar of all the events being held between now and the end of 2008 that may require customer involvement to be produced and shared with customers.

Attendees also suggested: the use of other training / learning media; effective succession planning; knowledge management and appraisals.
A comprehensive skills programme was also being developed to address continuity issues around LBS’ ageing workforce, as well as consideration of recruitment from other areas of HMRC and the private sector.
LBS is slightly under full complement of staff at present, but recruitment, particularly in relation to resourcing to risk, is ongoing.

Partnership Enhancement Programme (PEP)
David McGregor, LBS

David thanked members for supporting PEP. During the presentation (PDF 72K), feedback from two projects the previous year was mentioned:

Sector Leaders – the report that had been produced was given to each of the LBS Sector Leaders. Members of the PEP group were visiting each of the sector groups to discuss the findings and to implement them.
LBS Population – the group had worked very closely with the Population Project and had acted as validation for emerging thinking. The group also devised a 3-year time plan for co-locating customer teams.

The projects that have been chosen for this year are:

How the Confederation of British Industry (CBI) study on tax policy reads across to the Review of Links with Large Business.
Delegated decision making and control: how staff can manage this in HMRC and what can can be learnt from the private sector. The Review of Links provides big challenges - HMRC needs to understand when decisions can be devolved and when specialist input is required.
Learning best practice from inward secondees and full time appointments. Making the most of external knowledge from outside recruits.
Learning from the private sector’s investment in tax governance, systems and processes and encouraging investment in these areas. Gaining assurance that the governance, systems and processes are right to classify a customer as low risk and get the benefits that this brings.
Working with customers to raise the levels of transparency - from both sides.
Measuring the benefits of PEP to HMRC, commercial partners and participants – from individual, organisation, soft skills and projects. Requires a sponsor from the private sector with experience of PEP, either as a participant or a sponsor.

AP 02/0607 – David McGregor to produce a summary of the PEP projects with details of progress made against the recommendations

Members’ comments:

At the request of a member, the outline responsibilities of a sponsor, although it’s a flexible role, were provided:
- attend the event when the projects report back their findings and recommendations; in March – June
- ‘light touch on the tiller’; someone with experience who can question the team on the do ability of what they suggest
- helping and advising when recommendations are put forward; containing enthusiasm for having too many recommendations; and
- providing the team with contacts in areas that would help progression of the project.
Members expressed the positive benefits of such a role and it was pointed out that with participants now also from HMT, there is an opportunity for private sector participants to get an insight to areas they might otherwise not gain.

Introduction from Judith Knott, Business Customer Unit

Judith is the new Director of the Business Customer Unit with a responsibility for large business issues. Having previously worked in the Inland Revenue, Judith has recently returned from a spell in HMT and will now attend the Large Corporates Forum. Her key priority for this year is the implementation of the Review of Links; this was not just about ticking the boxes but ensuring the spirit of the Review was also implemented. Achieving certainty, early resolution, transparency and trust is not something that HMRC can do on its own; it requires two way determination, that of the customer and HMRC.

Review of links with Large Business
Peter Wharrad / Angela Brown, BCU

Peter provided a summary of the background, implementation and some of the proposals of the Review of Links (PDF 71K), including:

Implementing the proposals will be difficult without a shift in behaviours and attitudes across HMRC.
Significant effort is being made to ensure that implementation is kept on track. The Large Business Advisory Board, set up to monitor the implementation of the review will be in existence for five years and then be reviewed; the majority of the implementation will be carried out over the coming year. This is a long term programme and implementation will not be just a box ticking exercise but must demonstrate that there has been a shift in the performance of HMRC.
Two consultation documents will be published on Ruling & Clearances and Transfer Pricing and will address HMRC’s areas of uncertainty. Consultation will not just be a public endorsement of what HMRC is already planning; an apology was given as the period of this consultation will fall over the summer vacation period; this is unavoidable if the Pre Budget Report (PBR) timeframe is to be met and it is also regrettable that it will also coincide with consultation on Foreign Profits.
The consultation on rulings, which cut across a range of tax regimes, will raise a number of questions, including around the definition of the term ‘significant’, and whether HMRC should be doing more facilitation.
Concerns over resourcing pressures following any change to the clearances process and an associated increase in requests is being addressed. The Big 4 accountancy firms have been consulted and there is a need to devise a filter so that resources are concentrated on things that really matter to business. However, the definitions don’t need to be tied down so much that things are excluded inappropriately. HMRC is looking to customers for help in this area.
- It was suggested that publicising anonymised successes may help business although there was also a concern that there could be a spiral of requiring a formal clearance in order to have an audit trail for decisions.
All areas of HMRC will be working together to achieve the timeframes of 18 months for straightforward transactions and three years for the more complex in the resolution of Transfer Pricing enquiries.
Input from customers is very welcome and it is preferable to have a lot of correspondence on the same issues than miss something.
Support for proposal 13b (commercial understanding) was needed; HMRC can only go so far without the input from customers. The BCU would be willing to set up a meeting separately with LCF members if they thought this would be a useful way forward.

Commercial understanding

Attendees had been asked to comment and contribute to a paper on Strengthening Commercial Understanding. Commercial understanding was half of one proposal but will be the cornerstone of effective delivery of all of the proposals. It requires HMRC to understand how customers are organised, where the tax function sits within the business and when they are brought into decisions of a commercial nature amongst other things. This will not be achieved without the direct involvement of customers.

AP 03/0607 – Members to feed back comments on the commercial understanding paper to Glenn Stanley

Please contact Glenn Stanley

As noted, a ‘Week in Business’ (WiB) has had quite poor take-up by customers. It was highlighted that it need not be solely about tax but could be time spent in marketing, sales etc, it could also be hours spread over a period of time. One member has put together a programme for HMRC and the idea has been well received by colleagues.

AP 04/0607 – The programme that has been developed by one Corporate member for visiting HMRC people to the organisation to be shared with all Forum members

One concern over support for WiB was trust - it is difficult for customers to spend time explaining how things are done only to be met by scepticism.
It does not offer anything back to business; it would be difficult to do a WiB within HMRC due to confidentiality but if this could be overcome, there is a question as to what business would want to do.
A group similar to PEP, but with senior members of private organisations and HMRC should work through the meaning of commercial awareness, what business would like from HMRC and what HMRC could expect from business. This should involve customers not only with LBS people but with people from areas such as CT & VAT who do not have the same opportunities for working in this way.

AP05/0607 – Members who are interested in being part of a group looking at commercial awareness, examples of success etc to contact the LCF secretariat.

HMRC would like examples of where a professional approach by both sides has ensured a successful outcome to a problem / issue or where customers have noticed a difference in the approach of HMRC.

Active Management of Issues

Among the roles and responsibilities of the CRM is the need to manage the relationship between the customer and HMRC and to be accountable for the management of risk. The Litigation & Settlement Strategy and the 44/07 Business Brief ensures that disputes are conducted in a way that is professional, effective and supports HMRC’s objectives to close the tax gap and provide customers with a clear understanding of the law. (Andrew Page, author of the Strategy was present to answer questions)
There is a public commitment to actively manage issues from day one. Action plans will need to be signed up to by all areas of HMRC. It is important for feedback about current practices and for customers to give HMRC time and support to get this right.
Members felt that, where the issue is contained within LBS, it is generally dealt with effectively; it is where there is reliance on specialist areas that there are time delays/problems. There is sympathy with the CRM in trying to manage this especially where others are not working to the new way but still working to old methods. Customers do not have as many stakeholders as CRMs.
- Action Plans ensure that stakeholders are involved much earlier in the process and can sign up to the timeframes agreed, although some CRMs reported that customers do not want to sign up to Action Plans; this was not the case of members at the meeting.
Communication to all members of the CRM’s team of the existence of an Action Plan with a customer was crucial. Customers can not do everything and have to prioritise as much as HMRC with finite resources.

A.O.B.

There was no other business.

Special thanks were given to Adam for his input into the LCF as co-chairman at this, his last LCF meeting.

Next Meeting:
9 October 2007
Room 2/18
1 Horse Guard’s Road
London
@
12:00 – 17:00