HMRC and big business: how long will the honeymoon last?

The relationship between large business and HM Revenue & Customs has, it
seems, never been cosier.

HMRC has concentrated on building closer ties with big corporates through its
2006 ‘Review of links with large business’ project, while tax experts on the
corporate side have argued that business needs to be more responsible in its tax
planning.

It all suggests that things have never been better – but the question is
whether this happy balance is sustainable. A recent survey of 37 tax directors
at large corporates by HMRC indicates that the outlook for a more cordial
relationship is bright.

The study, ‘Large groups’ tax departments: factors that influence tax
management’, found that overall companies were ‘more reluctant’ when it came to
avoidance.

‘This reluctance was prompted by, as they saw it, increasingly complex tax
rules, the prospect of future reversals, and the increasing risk-aversion of
managements as a result,’ the report said.

The study also found that most tax directors were not incentivised by
achieving low tax rates or structuring avoidance schemes, but by managing tax
compliance efficiently and avoiding penalties or time-consuming scrutiny from
tax inspectors.

In the same paper, director general Dave Hartnett said HMRC wanted to ‘take
the business perspective into account in everything it does’.

So corporates are happy and willing to pay the tax they need to, while the
taxman is doing all it can to make tax easier to manage, more certain and less
onerous.

But can it last? One adviser who is not getting too excited just yet is
McGrigors tax litigation partner James Bullock, who believes the relationship
between HMRC and business has a cyclical character.

‘Business has been taking on board HMRC’s argument that corporates should pay
their reasonable share of tax. In some cases though, shareholders may want
boards to reduce tax rates, which may change the way boards approach their rela
tionship HMRC,’ says Bullock.