Business Risk Review: pilot to new approach
March 22, 2019
The BRR pilot meetings have now ended and HMRC are using findings from them, consultations with tax advisers and overseas fiscal regimes, to finalise the greatly updated BRR. In the webcast broadcast on 19 March 2019, Heather Wall from HMRC confirmed that the approach used in the pilot is in the final design stages and will be signed off in the coming months. Listen to the webcast in full.
What does new BRR look like and what can you expect?
There are two striking features of the BRR; firstly, that there are now four levels of risk: low risk; moderate risk; moderate-high risk; and high risk with a separate risk rating for each tax regime. Secondly, that those ratings are based on the following behavioural factors assessed in the context of inherent business complexity:
- Approach to compliance
- Internal governance
- Systems and delivery
Key messages from the BRR Pilot
Having carried out a pilot with 65 customers in relation to the enhanced Business Risk Review process, HMRC have confirmed that they are planning for the new process based closely on the pilot to be introduced in October 2019. It is important to consider how your organisation would be perceived under the risk criteria set out in the pilot and remediate where necessary.
Key points to note:
Successful pilot: 97% of respondents from the pilot said they would like the pilot process to become the new BRR process and so, HMRC are confident that with a few adjustments based on feedback received, the pilot will be a solid foundation for the new BRR process.
New rating system: Large businesses will be reviewed and provided one of four risk ratings (Low, Moderate, Moderate-High or High) with a separate risk rating being applied to each tax regime e.g. corporate tax, indirect taxes, employment taxes. Considering i) inherent business complexity and then three behavioural risk categories; ii) approach to compliance, iii) internal governance and iv) systems/delivery.
Deciding on a risk rating: HMRC will assess behaviour under the above 3 behavioural headings, each with a number of low risk indicators. If a customer meets all the low risk indicators HMRC will classify them as low risk. HMRC confirmed that inherent complexity should not prevent a group from achieving low risk.
Low risk indicators: Tax strategy and governance (including SAO) will play an important role in determining a low risk rating. There has been a strong suggestion that a low risk rating should only be provided to groups that adhere to the OECD's Tax Control Framework or have similar evidenced controls in place. It will also be important for groups to evidence testing/assurance of controls so that controls remain fit for purpose. Not having addressed the new Corporate Criminal Offence (CCO) regulations for example, will be an indicator of higher risk for tax governance.
Benefits of being low risk (HMRC action post BRR): This is still being considered and thoughts and feedback are welcome. HMRC will trust Low Risk customers to manage their tax risks without the need for intervention. Businesses should have a higher degree of certainty and should receive quicker responses to requests for clearances. HMRC will continue to consult on incentives.
HMRC connection to other tax authorities: HMRC have consulted to align as far as possible with other tax authorities in addressing the concept of cooperative compliance and tax control frameworks. This is a developing area which HMRC would welcome feedback in relation to.
Consistency: HMRC will provide additional guidance to CCMs and customers to give more explanation of what is expected from the process; they acknowledged this was a true pilot. In that context they may revisit with some participants to ensure the outcome is positive and they don't suffer from it being a pure pilot. To enable consistency, HMRC will feed into CCM training. This is an ongoing area of focus.