In July, HMRC published a consultation paper entitled 'Improving Large Business Tax Compliance', seeking feedback on legislative and regulatory measures designed to promote tax transparency and ensure that large businesses pay their taxes. The government's stated goal is to ensure that the UK's highly competitive tax system draws business to the UK economy, but not at the expense of transparency and public trust.
The consultation paper proposes that:
- all 'large businesses' should be required to publish their tax strategy so that there is public scrutiny of their approach to tax matters;
- a voluntary 'Code of Practice on Taxation for Large Businesses' should be introduced; and
- a new 'Special Measures' regime is created to target large businesses which persistently undertake aggressive tax planning or refuse to engage with HMRC in an open and collaborative manner.
As members of the Charity Law Association's Standing Committee on Taxation, which considers the impact of tax law and revenue practice affects charities, we have recently contributed to a response to HMRC's consultation.
While the government's stated goal is likely to be welcomed by charities on the whole, our key concern with this proposal is that any benefit to including charities in this regime would seem to be out of proportion with the administrative burden imposed. Considering that a wide variety of charitable tax reliefs are legitimately available to properly run charities, the largest and most well-known charities in the UK are hardly likely to be the pursuing the sort of aggressive tax planning strategies this regime is targeting.
Turning to some points of detail:
- The financial thresholds in the definition of 'large business' are appropriately high and so most charities would not be caught. However, the Charity Commission's 'top 25 charities' for income all have an annual turnover over the £200 million threshold, and many religious institutions and universities would have the relevant balance sheet total of more than £2 billion.
- The proposal for a named board member to have accountability for the published tax strategy of the business is a concept designed for the corporate world of paid directors. Charity trustees are generally volunteers and it would be unfortunate indeed if this proposal acted as a deterrent to attracting or retaining volunteer trustees at the country's most prominent charities. We proposed that executive accountability – the CEO or Finance Director – would make more sense for charity governance if this regime progresses without the desired sector-wide charity exclusion.
The consultation closed in October and we are awaiting HMRC's response.