Varney Review Progress 'Too Slow' For Business, Say Tax Experts

by Robert Lee, Tax-News.com, London

28 March 2007

Tax experts have welcomed the publication of documents relating to the Varney review of HM Revenue and Customs's relationship with large businesses in the UK.

The Review, led by former Inland Revenue chief, Sir David Varney, and published last November, recommends that HMRC should provide big businesses with increased and quicker assurance on the tax treatment of their activities and business transactions.

The Review proposes a series of commitments for HMRC, to be introduced over a timeframe up to the end of 2007, designed to provide business with greater certainty about the tax treatment of transactions more quickly; more efficient resolution of tax issues; and a more cost effective approach to administering tax affairs based on an efficient risk-based audit approach.

The Review puts forward a framework, based on culture change, consultation and dialogue and operational focus, within which business and HMRC can work together to improve the relationship. The main proposals underpinning this framework are:

• An advanced rulings process for significant investment and corporate reconstruction projects, and an extension of existing clearance practices - giving UK and international business easier, earlier and speedier certainty about tax matters.
• A more transparent approach to risk assessment, informed by an understanding of how businesses identify and manage risk, to ensure that resources are focused on resolving contentious issues more efficiently and quickly - reducing time and costs spent by business working with HMRC.
• A requirement for HMRC to take the business perspective into account in everything it does - giving earlier clarity and reducing complexity and administrative burdens for business.
• A Large Business Advisory Board will be established to oversee delivery of the Review's proposals and maintain an external challenge.

Last week, the government published two documents, entitled: “Making a difference: delivering the review of links with business” - a progress report on delivery of the proposals; and “HMRC approach to compliance risk management for large businesses” – a new approach to risk assessment and interventions. Included in the measures was confirmation that HMRC will now respond to technical questions about complex legislation relating to Substantial Shareholdings Exemption, and Stamp Duty Land Tax (SDLT).

While KPMG Partner, Paul Harrison has welcomed the publication of the documents, he criticised the government for its lack of progress thus far in acting on the review's recommendations.

"To the extent these documents give an update on work in progress, such as the intention to introduce certainty and clarify via a system of advance rulings, it is encouraging that HMRC are on track with their delivery plans. Although the jury remains out on whether these commitments can be delivered and we will watch with interest and continue to contribute to the announced consultations," he commented.

"Where proposals have been delivered with the intention of achieving speedier resolution of issues and the risk based approach we are disappointed with the output. Whilst the risk assessment framework is now more sophisticated, we remain unconvinced about the upside for low risk businesses and have seen precious little in relation to the promised improvements to employer compliance reviews. The trust gap remains at the heart of the issue," Harrison added.

"We would like to have seen more progress and some concrete proposals on how HMRC envisages raising professional standards and commercial awareness given this, combined with a better understanding of risk, will underpin the successful delivery of the new approach," he concluded.

Chris Sanger, Head of Tax Policy at Ernst & Young is also encouraged by the publication of the documents, but similarly observed that reform of HMRC's links with large business remains at an embyonic stage.

"Further commitments by HMRC to greater clarity, efficiency and transparency offer the hope of a better relationship between business and HMRC in other notoriously contentious areas," he observed.

"Overall, this is only the first stage in the reforms and there are many more legs to this race. Nonetheless, HMRC’s completion of the first lap is a good start on their journey which promises to put 'the customer at the heart of everything we do,' Sanger noted.

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