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August 25, 2016

Publication of U.K. Tax Strategy

A theme of recent years has been a marked increase in the scrutiny of the tax affairs of large businesses whether from ethical consumers, campaigners for social justice or politicians. As part of the base erosion and profit shifting (“BEPS”) initiative, the Organisation for Economic Co-operation and Development (“OECD”) has sought to address concerns around international transparency through the introduction of Country-by-Country Reporting, but this does not require any public disclosure. The U.K. government has decided to go one step further in the transparency stakes by introducing legislation that obliges the largest businesses to publish their U.K. tax strategies on an annual basis. This Tax Advisor Update provides an overview of the new rules which will apply to in-scope entities for accounting periods commencing on or after the date of royal assent to the Finance Bill 2016 (expected to be in September 2016).


The new rules can potentially apply to standalone companies, partnerships, U.K. groups (including U.K. sub-groups) and multinational enterprise groups (MNE groups). For ease of discussion, this article will focus on the provisions as they apply to U.K. parented groups and U.K. subsidiaries of foreign headquartered groups.

Whether or not an entity is in scope for a particular accounting period is determined by whether certain financial thresholds have been exceeded in the previous financial year. In the case of a U.K. group or sub-group, the rules will apply when either aggregate U.K. turnover exceeded £200 million for the previous year or when the aggregate U.K. balance sheet total exceeded £2 billion on the last day of the previous period.

In the case of MNE groups, where there is a U.K. entity or sub-group that does not exceed a threshold in its own right, it will still be in scope when the worldwide group exceeds the OECD Country-by-Country Reporting framework threshold of €750 million.

What this means in practice is that any group that currently falls within the Senior Accounting Officer (SAO) regime will almost certainly find itself in the regime. Furthermore, because of the additional rule for MNE groups, there are likely to be some relatively small U.K. subsidiaries of major global organisations that will now have to devise and publish a U.K. tax strategy.

 While a number of groups already publish their tax strategy in their accounts or online, these are usually global tax strategies, and those groups will therefore still have to devise U.K. specific tax strategies to meet the new rules.


The tax strategy must be published on the internet as a separate document or a self-contained part of a wider document. It must be accessible to the public, free of charge and must remain available until the company’s strategy for the following year is published. The deadline for initial publication is the end of the first financial year that falls within the new rules. For companies that prepare their financial statements on a calendar year basis, the deadline for initial publication is therefore likely to be 31 December 2017. Thereafter, the strategy will need to be published annually no later than 15 months after the publication of the previous period’s strategy.

The strategy may be published on behalf of a group or U.K. sub-group by any U.K. company that is a member of that group or sub-group. However, subject to any further guidance becoming available, it appears that the law would require U.K. members of a foreign group that do not themselves form a U.K. sub-group (i.e., sister companies with no common U.K. parent) to each publish their individual strategies.


The statutory provisions specify the content of the group tax strategy. It must set out the following:

  • the approach of the group to risk management and governance arrangements in relation to U.K. taxation;
  • the attitude of the group towards tax planning (so far as it affects U.K. taxation);
  • the level of the risk in relation to U.K. taxation that the group is prepared to accept; and
  • the approach of its dealings towards Her Majesty's Revenue and Customs (“HMRC”).

The government has published draft guidance which sets out those areas that a group or company might be expected to include to adequately address each of the four areas specified in the rules.

Risk management and governance

This would include details of how the business identifies and mitigates inherent risk, the governance framework including the level of oversight given to tax matters by the board of directors, and a high-level description of the systems and controls that have been put in place to manage tax risk. This may also include a high-level description of the key roles and responsibilities associated with the group’s tax affairs.

Attitude towards tax planning

This should set out an outline of the drivers of tax planning and the weight given to these in formulating tax strategy.

HMRC will also expect an explanation of the group’s approach to planning, an explanation of why tax planning advice may be sought externally and details of any code of conduct that has been put in place.

Acceptable level of risk

The guidance concerning what the tax authorities would expect to see in order to provide adequate disclosure to satisfy this area of the requirements is fairly limited. The likely content would include an explanation of whether the group’s internal governance is prescriptive on levels of acceptable risk and, if so, how this is quantified and how this is affected or influenced by stakeholders.

Approach towards dealings with HMRC

Most businesses within the scope of the requirements will have a customer relationship manager (“CRM”) who should already be familiar with the group’s approach. Notwithstanding this, it is necessary to articulate how this relationship works so that the general public can understand how the organisation works with the authorities to meet its compliance obligations, deals with uncertain positions and resolves disputes.


There are financial penalties for failing to publish a tax strategy that meets the legislative requirements within the prescribed period. But these penalties are modest compared with the potential commercial implications of being publicly identified as an organisation that does not take its tax obligations seriously. Nevertheless, any published strategy needs to speak to all stakeholders and therefore the messages need to be considered very carefully. The board of directors will need to consider carefully how to balance the interests and concerns of the outside world with their duty to the company and its shareholders.