In today’s environment, business is no longer just about maximising shareholder return but about being a good corporate citizen.
A company’s reputation is critical to the ability to succeed. Ensuring a strong reputation has moved beyond being “nice” to becoming a fundamental part of business. Today’s businesses face intense and unrelenting scrutiny. Information that was previously kept private is now demanded by a world of stakeholders. The scrutiny of tax risk and internal controls has increased vastly and continues to do so. It appears that everyone has now something to say about tax and whether a company pays its “fair” amount.
Tax regulation forces companies to deal with multiple tax challenges. Larger businesses face the Senior Accounting Officer regime (which no longer has HMRC’s “light touch” approach!). They must also comply with the latest requirement to document and publish online a robust tax strategy. These challenges demonstrate the increased emphasis being placed on a company’s tax function.
Even if your business is not subject to these recent challenges, the demands on the tax function have never been more onerous and the risk that tax issues present to reputation and profit has never been greater! Undertaking a review of tax processes and controls is vital. This will not only highlight to HMRC the importance you place on your tax function but having well-documented tax processes will contribute to a reduction in the overall tax cost of your business whilst at the same time minimising tax risk.
For most companies a complete “tax risk assessment” is predominantly seen as an administrative burden and perhaps brings up feelings of dismay over the size of the exercise ahead (without the manpower to do it!). It is understandable why organisations may need a lot of convincing that this can actually be used to the organisation’s advantage.
There is no denying that undertaking a risk assessment will take time and effort. However, once complete, the business should have compiled a unique document library should HMRC have any tax risk queries.
By walking through the organisation’s tax processes from start to finish, new procedures and policies may be written. When flaws are highlighted, new controls can be put in place and documented with new improved tax processes evolving. Maintenance should then flow naturally with reviews in place to ensure that procedures are being followed and controls are being implemented. Once documentation is finalised, increased tax transparency should create genuine benefits such as minimising the risk of penalties, incorrect tax payments and HMRC enquires.
In my previous role as in-house tax for a large organisation, I experienced most of the above first hand. Although I started the risk review process somewhat reluctantly, as I watched the benefits of it unfold, I began to question if I could ever have fulfilled my role properly without it. Having worked through a risk assessment and the evaluation of controls around processes, I came out the other side with a totally different attitude. Tax risk management should be on the forefront of a company’s agenda.