On 22 July, HMRC published a consultation on Improving large business tax compliance. The scope of this consultation is defined as follows.
At the 2015 Summer Budget, the Government confirmed its intention to consult on measures intended to improve large business tax compliance. These measures are designed to drive further behavioural change in the large business population, embedding best practice in tax compliance in the population as a whole and equipping HMRC with additional tools to tackle the small number of large businesses which continue to engage in tax avoidance or aggressive tax planning, or resist full and open engagement with HMRC.
At first glance, this looks fairly innocuous, if a little patronising. As always with consultations on tax policy, however, the devil is in the detail. The introduction to the condoc explains that the Government intends to introduce three things:
- A legislative requirement for all large businesses to publish their tax strategy, enabling public scrutiny of their approach towards tax planning and tax compliance;
- A voluntary ‘Code of Practice on Taxation for Large Business’, which sets out the behaviours which HMRC expects from its large business customers; and
- A narrowly targeted ‘Special Measures’ regime to tackle the small number of large businesses that persistently undertake aggressive tax planning, or refuse to engage with HMRC in an open and collaborative manner.
I ntend to blog in more detail at a later date about my thoughts on this consultation. For the moment, however, I want to focus on the idea of introducing a ‘Code of Practice on Taxation for Large Business’.
Details of the code are set out in Chapter 3 of the condoc and we are told that it will:
[provide] a common set of principles to encourage all businesses to adopt the most positive tax compliance behaviours, and which businesses themselves can use to promote exemplary behaviours across their organisation. It will also offer large businesses a means to demonstrate their commitment to these standards and have that recognised.
Forgive me, but what pompous twaddle. I hardly think that HMRC, or the Government, is in a position to advise anyone on “exemplary behaviours”. That isn’t my main worry with the idea of this code of practice. No, my real concern is the basic idea that we should look to enforce tax legislation through codes of practice. Now, I’m not going to argue that the solution is simply for the Government to introduce quality legislation that is not riddled with “loopholes” (although that would be nice). To be fair to the Government, with the complex and messy tax system that we currently have that is not as easy as it sounds. That said, in my opinion codes of practice are not a sensible – or even practical – way to enforce compliance with tax legislation. I would suggest that it would be a lot better if HMRC put more resource into working more closely with the companies it is concerned about and enforced compliance that way.
Of course, that would require the Government to invest in more resource for HMRC rather than cutting back and we all know that won’t happen!
Mind you, this is only a “voluntary” code of practice so what’s the problem? Yes, it is “voluntary”. At the moment.
Remember, the Banking Code of Practice started out being “voluntary” and then (when not enough banks signed up) HMRC was told to publish annual reports listing those that had signed up and those that had not. Effectively, blackmailing banks into signing up.
There are no plans to name companies who don’t sign up to this code of practice. Again, at the moment. But, as they say, watch this space.