HMRC conducts business risk reviews on large and complex employers. Achieving a low risk rating from HMRC is obviously the desired outcome, but what can you do to achieve it?
Background
An HMRC business risk review (BRR) is the process by which it evaluates and discusses with a large or complex employer where it thinks the business is on the compliance spectrum and in particular whether it meets the criteria to be given a low risk rating. Achieving a low risk rating means less compliance activity will be directed at the business. Even the largest and most complex businesses can be classed as low risk if they mitigate compliance risks to an acceptable level through their processes and approach. BRRs take place annually for customers who don’t have a low risk rating, whereas low risk employers have a three-year risk cycle.
How is it structured?
HMRC considers the following when undertaking a BRR:
- the sector in which the business operates, and its potential impact on the tax compliance risk
- for each tax what is the effect of the business’ relationship with HMRC, their systems and processes, governance and overall approach to tax compliance and whether this increases or decreases risk.
HMRC will set a risk level and agree actions to reduce the level if necessary. The possible risk levels are low, moderate, moderate – high or high.
Preparation and group reviews
HMRC’s customer compliance manager (CCM) will ensure that they have a good understanding of the sector in which the business operates and the way that it handles tax affairs. They may well call on specialists from other parts of HMRC to assist in the review. The BRR should be a collaborative process so that the business takes a view of its tax compliance, discusses this with the CCM and comes to an agreed position. HMRC is well aware that in a group structure confidentiality may mean that separate risk reviews need to be carried out with different business entities and it’s entirely acceptable to proceed on this basis. This can mean that different parts of the group will achieve different risk review levels. An overall risk review still needs to be agreed with the group and any parts of the business that achieve a non-low risk rating will have HMRC resources directed towards that area to improve its ratings at future reviews.
Pro advice. A BRR is an extremely serious process and the audit committee, board of directors and/or external auditors may well need to be involved in the process and subsequent findings.
The BRR template
The BRR template is a standalone document that summarises the risk rating for the business as well as in relation to individual taxes. The CCM will provide an overview of the landscape in which the business operates and the overall risk rating. There are then separate sections for corporation tax, employment duties, VAT, customs and international trade and the HMRC specialist for each of these areas will complete these giving an individual risk rating with a supporting narrative.
For any areas where a non low-risk rating has been given an explanation will be provided as to the reason for this and what actions need to be taken to achieve a low risk rating, by whom and over what period.
Even the largest and most complex businesses can be classed as low risk if they mitigate compliance risks to an acceptable level through their processes and approach. The board of directors and/or external auditors may well need to be involved in the process and subsequent findings.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.