HMRC first introduced risk reviews for large companies in c.2007 to help them assess the level of involvement HMRC should have in a company’s tax affairs. Put simply, a low risk company should be able to expect fewer tax enquiries. However, in practise the tax risk rating issued rarely seemed to impact on the relationship with HMRC.
In 2017, HMRC conducted a consultation into the risk review process. This consultation highlighted several areas of improvement, prompting HMRC to reconsider the process.
Findings from The Report
The main changes are, the new risk assessment procedure will have four categories of risk, rather than two:
- low risk;
- moderate risk;
- moderate-high risk; and
- high risk.
A category will now be applied to each type of tax e.g. Corporate, Indirect taxes and Employment taxes.
The ratings will be based on inherent business complexity along with three behavioural factors:
- The businesses approach to compliance
- Internal governance
- Systems and delivery
In contrast to the current process, HMRC have confirmed under the new regime, inherent business complexity will not stop a business from being low risk.
The exact benefits of being low risk are currently still to be confirmed but initial suggestions have been less intervention and enquiries from HMRC and more timely responses to requests for clearance.
When Will This Be Effective?
In March, HMRC have conducted a trial of the new regime with 65 businesses with 97% of respondents confirming they thought the process should change to that tested. HMRC have since announced they will roll out the new process from 1 October 2019.
What Should Companies Do Next?
Businesses who want to retain a low risk rating will need to demonstrate that they have a strong tax framework in place with clearly defined accountabilities and controls. This framework should be monitored and tested regularly to ensure it is still fit for purpose and includes updates for new regulations.
If you want to discuss how this may affect your business please feel free to get in touch.