If you’re a sole trader or SME owner who stays awake worrying about that packet of printer paper you claimed on expenses – when you know your daughter used three sheets for her homework – then chances are that hearing about the latest ‘creative’ tax avoidance by the likes of Google, Amazon and Starbucks gets you pretty mad. (No? Just me, then).

But fear not; it makes HMRC mad too, and they have big businesses in their sights.

Tax Strategies under Scrutiny

HMRC have published a consultation documents entitled ‘Improving Large Business Tax Compliance’, which outlines measures which will compel large companies to publish their tax strategies. These are ‘designed to drive further behavioural change in the large business population, embedding best practice in tax compliance in the population as a whole,’ says HMRC.

The measures outlined are:

• A legislative requirement for all large businesses to publish their tax strategy, enabling public scrutiny of their tax planning and compliance. This involves annual publication of the business’s tax strategy, including its attitude to tax risk, its appetite for tax planning, and its approach to its relationship with HMRC. The HMRC will require notification of when and where the tax strategy has been published.
• A voluntary ‘Code of Practice on Taxation for Large Business’, which sets out the behaviours HMRC expects from its large business customers, including ‘positive and responsible’ ways of working with the HMRC, openness and transparency, best practice in their approach to governing tax affairs, and formalising the standards adopted in structuring their approach to tax planning.
• A ‘Special Measures’ regime to ‘ensure that there are negative consequences for the very small number that persist with aggressive tax planning or uncooperative behaviours.’ These measures will ‘target only the most persistent and high risk behaviours,’ and will only be applied where these behaviours persist ‘despite the fact that HMRC has already taken significant action to change them (for example through HRCP).’
  HMRC will look at a) the number of occasions a business has entered into tax avoidance schemes (whether or not they have been successful in avoiding tax) b) the ‘nature’ of those schemes (the extent of ‘contrived or abnormal arrangements’) c) the number of times aggressive tax planning has resulted in a business’s returns containing inaccuracies, ‘and the nature of these inaccuracies.’

HMRC Means (Big) Business

HMRC suggests its ‘objective threshold’ may be ‘businesses who have a turnover of more than £200 million and/or a relevant balance sheet total of more than £2 billion for the preceding financial year,’ meaning that most of us can rest easy. Broadly speaking, says the HMRC, businesses affected by the measures will be those administered by HMRC’s Large Business Directorate.

Pressure from the media, the public and the government has already improved the situation. HMRC points out that ‘a number of businesses have changed their behaviours (and some with a history of avoidance now publish tax strategies which renounce it).’ The ‘High Risk Corporates Programme’ (HRCP) has resolved over 1700 tax issues, collecting more than £14 billion since April 2010, while the Code of Practice on Taxation for Banks, the Disclosure of Tax Avoidance Schemes (DOTAS) and Senior Accounting Officer (SAO) regimes, the General Anti-Abuse Rule (GAAR), recent Diverted Profits Tax and wider initiatives such as the Extractive Industries Transparency Initiative (EITI) and the Capital Requirements Directive (CRD IV) are leading to greater tax transparency – and £7.3 billion in additional compliance revenues from the largest 2,100 businesses in 2014–15.

Levelling the Playing Field

However, HMRC knows there is still more to do; while only a small number of businesses are at fault, the tax amounts involved are considerable. In 2014-15, tax collected from HMRC’s large business customers represented roughly 38 per cent of HMRC’s total receipts – £198.8 billion.

“There are still a small number of businesses which simply do not play by the rules – persistently engaging in tax avoidance or highly aggressive tax planning, or refusing to engage with HMRC in a full, open and proper way,” wrote David Gauke, financial secretary to the Treasury, introducing the document. “It would be unfair to the vast majority of businesses not to do more to tackle this problem, and to level the playing field for all.”