Large businesses trading in the UK are now required to comply with three new regulations affecting their tax planning and strategy. These measures affect the reporting of all UK taxation matters, including VAT and PAYE.
New Regulation 1: Senior Accounting Officer Regulations
Affected businesses may be required to appoint a Senior Accounting Officer (SAO) who is ultimately responsible for establishing and maintaining the company’s tax accounting arrangements.
Who needs to do it? Any company (or combination of UK Group Companies) with turnover in excess of £200 million, and/or gross assets greater than £2 billion.
What are the SAO’s responsibilities? It is the primary responsibility of the SAO to take ‘reasonable steps’ to ensure the company has ‘appropriate tax accounting arrangements in place’ to correctly and accurately capture tax liabilities. This will most likely involve:
Ensuring compliance with legal requirements
Periodically checking systems and processes
Ensuring staff are appropriately trained to carry out their functions
Obtaining relevant facts and advice to allow the company to make tax sensitive judgements
Typically, SAOs will seek assurance that their tax arrangements are appropriate to the needs of their business through specialist Internal Audit processes.
What are the reporting requirements? Every year, the company must provide HMRC with details of each individual who acted as the company’s SAO during the financial year. The SAO must then certify to HMRC that the company had appropriate tax accounting arrangements throughout the financial year, or if not, identify the issues arising.
What are the deadlines? The deadline is the statutory filing deadline of the company’s accounts. If the SAO certificate covers a group that contains both PLCs and Limited companies, the earliest deadline applies.
New Regulation 2: Tax Strategy Publication
Qualifying large UK businesses will need to publish their tax strategy each year on the company website. Typically this will be included with the company’s other CSR documentation.
Who needs to publish? The regulation generally applies to companies that are also within the SAO regime, in respect of all accounting periods that commence after 15 September 2016.
What are the reporting requirements? The legislation details that the tax strategy must set out:
The entity’s approach to risk management and corporate governance with respect to UK taxation
The company’s attitude to tax planning
The level of risk that the entity is prepared to accept with respect to UK taxation
The entity’s approach to dealings with HMRC
What are the deadlines? The company is required to publish its first tax strategy by the end of the first financial year starting on or after 15 September 2016. Subsequent strategies must be published annually before the end of the next financial year. The strategy must be published online and be free to access by the general public.
New Regulation 3: Country by country reporting (CBCR)
The OECD has long called for the development of rules for transfer pricing documentation to enhance transparency for tax administrations. To fall in line with OECD/G20 BEPS initiatives, the UK government issued the Taxes (Base Erosion and Profit Shifting) (Country by-Country Reporting) Regulations 2016, which came into force on 18 March 2016.
Who is affected? Multinationals with a UK presence, as members of groups with consolidated group turnover of €750 million, will need to file country-by-country reports for all accounting periods starting on or after 1 January 2016. In most cases the CBCR must be filed by the ultimate parent entity to its home tax jurisdiction. However, if all upstream entities are resident in jurisdictions that do not require CBCR, the top UK entity must file a CBCR with HMRC.
What are the reporting requirements? An annual return will need to be prepared showing the following for each tax jurisdiction where business is carried out:
The amount of revenue, profit before tax, and taxes paid and accrued
The total employment, capital, retained earnings and tangible assets
Details of business activities
What are the deadlines? The CBCR needs to be filed within 12 months following the end of the accounting period. Penalties may apply for non-compliance and/or inaccurate filings.
New Regulation 4: Local File
The Master and Local File are the second and third tier of the Action 13 Transfer Pricing Documentation. The Master File is a document which contains high level information about the global business operations and the transfer pricing policy of the group. The Local File provides more detailed information and analysis about the local entity’s intercompany transaction.
Who is affected? In general groups which do not breach the small or medium enterprise thresholds for transfer pricing purposes are exempt from the UK transfer pricing legislation. Groups with no more than 250 staff and either an annual turnover of less than €50 million or a balance sheet total of less than €43 million would be considered SMEs. Groups which do not meet this criteria will not be considered SMEs and will be subject to full UK transfer pricing legislation.
What are the reporting requirements? There are no Master File and Local File UK filing requirements. However HMRC can request such transfer pricing documentation and the window for providing this is normally 30 days. HMRC has recommended transfer pricing documentation prepared conforms with the OECD 2017 Guidelines for Master and Local File requirements.
What are the deadlines? These Guidelines are effective for accounting periods starting on or after April 2018. HMRC may request transfer pricing documentation to be produced and the window for providing this is normally 30 days.
How we can help
Failure to comply with these new requirements, or the submission of inaccurate disclosures, can lead to significant financial penalties and damage to a company’s reputation. We strongly recommend that you seek advice at the earliest opportunity in order to achieve full compliance.