What about a large tax enquiry / hmrc enquiry into a business or corporate, carried out by HMRC’s ‘large business’ directorate’ and ‘wealthy & mid-sized business compliance’ directorate?
Whichever part of HM Revenue & Customs (HMRC) the comparatively larger business is the target of, such a corporate tax enquiry / HMRC enquiry is typically carried out by a team of officers. This calls for increased resources being required at the business’ end (i.e. more people and time resources and so costs too). Such a tax enquiry is not to be confused a regular compliance check into personal tax returns or simpler corporation tax returns, which typically focus on a single tax year or accounting period, and sometimes just a handful of aspects. The larger and more complex HMRC enquiry / HMRC investigation discussed in this article significantly disrupts the owner(s)’ lives and/or their finance team’s and/or their advisers’.
What is a customer compliance manager?
HMRC aims to ensure continuity (in terms of contact) and a deeper industry specific understanding of the business (or ‘customer’ as the department calls them) when carrying out a corporate tax enquiry. HMRC appoints a dedicated customer compliance manager (CCM, formerly known as a customer relationship manager (CRM) for businesses which fall into HMRC’s large business directorate’s (LB) remit. CCMs also take responsibility for a selection of large businesses which fall within HMRC’s wealthy & midsized business compliance directorate’s (WMBC) remit, formerly referred to as customer co-ordinators. Remember, such an HMRC enquiry into the corporate is not routine, despite what HMRC may suggest.
HMRC’s LB manages and thus constantly reviews the very largest businesses, which typically have an annual turnover of over £200m, or lower where the business or the sector in which it operates, is complex. There are reportedly approximately 2,000 such large businesses operating in the UK.
HMRC’s WMBC enquire into businesses typically with an annual turnover of £10m or more, which they estimated as being around 160,000 in number last year. Instead of a permanent CCM – as in LB – who is tasked with encouraging compliance and a low-risk strategy. In WMBC the focus is on the cross-taxes enquiries, despite a project trialling an LB-like approach earlier this year. That said, mid-sized businesses can request support (and attention) too from WMBC where they don’t have a CCM already.
What is a business risk review in LB?
A business risk review is supposed to be a collaborative evaluation of potential tax risks, conducted between the business and HMRC – led by the CCM. The key objectives of this assessment include determining the business’ overall risk rating and status, outlining any actions to take to reduce risk, and identifying the resources and scrutiny correspondingly required. For businesses with low-risk ratings, the full assessments are done every three years, while moderate to high-risk companies continue to undergo annual reviews.
The CCM’s role is to develop an open and cooperative collaboration between the business and HMRC, to address any tax compliance risks in real-time during the HMRC investigation. The CCM seeks to gain insights into the business’ tax risk strategy, profile and sector; including assessing the appropriateness of the tax accounting arrangements. In practice this means discussing key tax compliance risks and corresponding risk control strategies within the business as soon as possible as part of that targeted HMRC enquiry.
In those discussions concerning the business’ strategy, systems, governance and the risks, the CCM addresses uncertainties related to senior accounting officer (SAO) provisions too, ensuring SAOs are aware of the certification deadlines and emphasises the expectation of accurate tax liability calculations.
Please note LB’s total financial yield for the 2022-23 reporting year, from its compliance actions was £8.606bn. Out of this, the VAT secured was £5.142bn, and the corporation tax (CT) collected was £2.557bn.
Key points
- A tax enquiry into a business / corporate can significantly disrupt the owners’ lives and/or their finance team’s and/or their advisers’.
- HMRC’s Large Business directorate manages around 2,000 businesses with large turnovers and its Wealthy & Mid-sized Business Compliance directorate oversees approximately 160,000.
- Consider the role of the customer compliance manager in an HMRC enquiry.
- Beware of handling requests for information where sampling should be offered and encouraged.
- Understanding the risk-based approach HMRC takes to ensure the scope of an HMRC enquiry is narrowed.
What is an hmrc enquiry / tax enquiry into a business/corporate?
A comprehensive tax enquiry into a corporate (or full) cross-taxes HMRC enquiry is much more involving than a routine compliance check into a few aspects of a business’ tax return. As above, it too is resource-intensive, led by a CCM who brings with them a team of specialists, typically covering VAT and employer duties like PAYE and NICs as well as CT of course.
Not all businesses, even those that are more financially capable, have specialists in-house nor do they have finance teams that can spare the attention and time required on such an HMRC enquiry. HMRC wants, and prefers, a team-on-team approach wherever possible.
The CCM will ask for a meeting with the business owner(s) if they’re involved in the business as well as those responsible for the record keeping and accounting and tax preparation. The idea has always been to understand:
- how the business operates in practice;
- the contemporaneous records maintained;
- the accounting processes followed and the underlying responsibilities; and
- the subsequent adjustments made ahead of accounts finalisation.
If not during the initial meeting, HMRC will quickly ask for a comprehensive download of the electronic accounting records, which the department may offer to assist the business with (using their data handling specialists). This is what sets apart a business tax enquiry.
While it’s almost certain that only the one accounting period will be under enquiry formally for CT purposes, HMRC will encourage the sharing of some four years’ worth of records to support the VAT returns submitted and thus seek to collect a vast amount of data.
In practice, this is then used for CT and employer duty purposes too – this happens almost all the time. Beware of handling requests for information where sampling should be offered and encouraged, to restrict the outflows of information and to better manage the next stage of the HMRC enquiry.
Armed with huge volumes of business accounting records, HMRC will identify tax risks for pursuit. It typically organises itself internally by creating an action plan, which the various specialists feed into, again e.g., CT, VAT, PAYE and income tax related queries. HMRC does not hide these; but shares them with the business to focus its mind on the risks identified and thus the task ahead. It’s not uncommon for a business to become aggrieved at this stage, especially after they had entertained an initial meeting and innocently shared vast business records, hoping that HMRC would be pleased and simply move on.
It’s normal for the pain to start showing as the enormity of the task becomes clearer. Whether the business complies fully, partially and/or belatedly, the action plan needs to be understood and worked on with the express goal of satisfying HMRC as to the non-risky nature of the matters concerned, and encouraging them to move on without delay. There will be several lines of enquiry, which in practice have a life of their own.
So it goes without saying that sharing too much information, especially where it was unnecessary or not sampled, is just as dangerous as withholding information or refusing to resource the request for it properly – when HMRC had decided it was a reasonable request.
We don’t cover the detailed workings of nor the skills and techniques required to best manage an HMRC enquiry in this article, because there is much to know and discuss and for the sake of brevity. We can confidently say that these types of enquiries do not disappear quickly because one wants them to, so be prepared to work hard on them. A deep understanding of them and experience of handling the risk-based approach HMRC takes, ensures the scope of these enquiries is narrowed sooner and a conclusion comes into sight as quickly as possible.
By way of comparison with LB, it is worth mentioning that WMBC’s total financial yield for the 2022-23 reporting year, from its compliance actions was £5.902bn. Out of this, the VAT secured was £1.626bn, the CT collected was £579m, and the highest head of tax collection came from income tax at £2.683bn (which would largely include revenues from the ‘wealthy’ arm of WMBC).
Working with a tax enquiry / HMRC enquiry specialist
For businesses at the receiving end of an in-depth business HMRC enquiry / tax enquiry, the immediate option tends to be continuing reliance on their familiar and sometimes long-standing accountants, tax partner, audit adviser, etc. Understandably, these relationships have been built over time, and offer a sense of security.
However, the businesses are at crossroads and so able to consider alternatives. For example, the existing adviser might lack the increased resources required to handle the HMRC enquiry expeditiously and/or the knowledge/experience required to handle the increased technical complexities as well as the need to analyse bulk records quickly. In some cases, the businesses notice the shortcomings in their adviser’s management of the enquiry process, which leads to several problems like:
- providing HMRC with too much information (usually unnecessary or irrelevant) causing additional/deeper lines of enquiry;
- providing too little information on the false belief they are protecting their client’s interests (this is especially harmful where statutory business records are withheld or HMRC is encouraged to use its formal information powers); and
- generally antagonising the HMRC officer through a dilatory approach and/or simply blocking them unabatedly, hoping HMRC will just go away.
Then, of course, there is the adviser’s natural fear of admitting a mistake or oversight, and even negligence which may be identified through the HMRC enquiry.
Crucial necessities of expertly managing an HMRC investigation are:
- striking the right balance between collaboration and challenge
- timely transparency and selective information/records sharing, only after having considered sampling to keep costs down and make progress more quickly; and
- ensuring a comprehensive, well thought out construction accompanies the information being shared, so that the officer does not have to build up the background/story(incorrectly) themselves.
It is no surprise that the work of a specialist in these circumstances is to critically evaluate everything the business is asked for, everything they then gather and collate, and to identity alternative records/evidence, to demonstrate the facts in the best possible light. One must assist HMRC in its endeavours rather than being at loggerheads unnecessarily. After all, everyone should want a fastidious approach and thus a conclusion; which ought to be a negotiated and agreed one.
Having an independent, specialist tax disputes firm managing something as important as a business HMRC enquiry is a game-changing strategic decision. An un-biased perspective is always free from potential conflicts of interest that can and do arise when relying solely on an in-house team or existing advisers.
Similar versions of this business tax enquiry article have been commissioned and published by the following professional outlets:
HMRC Enquiries, Investigations & Powers magazine (Independent Certified Practicing Accountants)
London Business Matters magazine (London Chamber of Commerce)
Accounting Today (Croner-i)
How we can help?
We strongly believe it’s in a business’ best interests to discuss this type of corporate tax enquiry because its intensive and intrusive, with an ‘independent specialist’. The right help at the right time ensures that HMRC are effectively managed and an enquiry is concluded expeditiously.
Our team are experts at resolving contentious tax issues accurately and efficiently, and we are highly adept at managing our clients’ interactions with HMRC to ensure processes run smoothly and that our clients’ interests are best protected at all times.
Importantly, we deliver that all-important trusted ‘buffer’ between our clients and HMRC during a business/corporate HMRC enquiry, other investigations and disclosures, as well as in-depth and intrusive investigations.
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