Big businesses should agree to renounce aggressive tax planning, says HMRC

The government wants the UK’s largest businesses to sign a voluntary code of conduct on tax which would see them renounce aggressive tax planning and vow to follow the spirit as well as the letter of the law.

Big businesses would also be obliged to publish an annual tax strategy, signed off by a named executive at board level, under new rules proposed by HM Revenue and Customs.

“It is clear that attitudes to aggressive tax planning are changing,” said financial secretary David Gauke, in his introduction to a consultation document published on Wednesday. “The public, investors and stakeholders now expect higher standards of tax compliance and more transparency from large businesses about the way they approach taxation.”

Gauke said there were “still a small number of businesses which simply do not play by the rules – persistently engaging in tax avoidance or highly aggressive tax planning”.

Each company will have to articulate their appetite for risk in tax planning, and say whether they “seek to work in accordance with the spirit – in addition to the letter of the law”.

Businesses may have to publish whether the UK group has an effective tax rate, what that rate is, and what measures the business is taking to maintain or reach this target. While UK corporation tax is currently 20% and will drop to 18% in 2020, some businesses pay more or less tax depending on how they structure their companies. Vodafone, for example, paid no UK corporation tax in its most recent financial year.

A specific employee at board level would be responsible for “owning and signing” the tax strategy, which could be published on the company’s website and in its annual report. Chief executives are taking a keener interest in tax planning, said HMRC, and “increased scrutiny of tax strategy by a business’s board actively discourages aggressive tax planning”.

HMRC will consider whether the tax returns and claims received from a business are in line with its strategy, and if they are materially inconsistent, the company could come under closer scrutiny by tax inspectors. Those who refuse to publish a tax strategy would face sanctions.

Companies found repeatedly proposing aggressive tax schemes and those who refuse to cooperate with HMRC would be put into a new special measures regime.

The measures would apply to businesses with a turnover of more than £200m or more than £2bn of assets, and HMRC believes having companies publish their tax strategies could bring in about £65m a year in extra receipts.

Under the voluntary code of conduct, businesses would avoid structuring their transactions in artificial ways that serve only to slash their tax bills. The draft code states: “In all cases, the business should reasonably believe that transactions are structured in a way that gives a tax result which is not contrary to the intentions of parliament.”

Tax campaigner Jolyon Maugham QC welcomed the proposals, saying: “HMRC have arrived at the conclusion that there is only so much that they can do with the law. They want to change the way businesses think about their tax obligations. They are thinking about non-legal pressures on companies in engaging in socially destructive behaviour.”

The government is expected to take similar steps to discourage aggressive tax planning by wealthy individuals and their advisers, said Maugham.