When the Taxman calls: A systems approach to tax compliance

HMRC’s move towards a systems-based approach to inspections will change how businesses consider and respond to tax risk. The increasing complexity of IT systems and regulation, set against growing stakeholder pressure for good corporate governance, has refocused HMRC’s attention on ensuring management take responsibility for controlling the numbers they submit to them.

We regularly see examples where businesses have errors in their tax numbers or reporting caused by:

• Ineffective processes and controls that are poorly designed or not operating as expected;
• A lack of management oversight or confusion over what has to be controlled;
• Incorrectly configured systems or invalid changes being made to systems and data;
• Inconsistent procedures or staff not being adequately trained; and
• Weaknesses in security failing to prevent or detect fraudulent activity.

It is important to recognise that this is not simply an issue for the tax department. Risks to transactions and balances arise at each stage, from entry in a sales or purchase ledger through to collation and adjustment in finance. Even companies with good controls over data entry can find themselves in difficulty because their controls only help to ensure the accuracy of financial reporting rather than tax reporting. There is often an assumption that information is complete and accurate simply because it is system generated or because it has been produced by another department.

So how do you ensure you have good systems for tax compliance? Taking some simple steps to review the systems, processes and controls you have over tax reporting can ensure that you are prepared for conversations with HMRC. Our team of experts has significant experience in bringing together tax, systems, regulatory and controls knowledge. By combining this with recognised and robust methodologies we offer health checks and readiness reviews to help prepare management and provide confidence they have responded adequately to tax risk. Our work has helped our clients to:

• Find tax errors before HMRC does - reducing the need for costly and time-consuming tax investigations;
• Minimise the risk of fines, penalties or loss of reputation;
• Document and validate their systems, processes and controls to ensure they are designed and operating effectively and satisfy HMRC requirements;
• Improve or maintain a good relationship with HMRC;
• Ensure the accuracy and integrity of management information;
• Meet audit requirements (e.g. for publicly listed entities);
• Educate staff in areas such as regulation, risk management, systems and control; and
• Enhance existing processes and controls to increase efficiency and improve cost-effectiveness.

Robust systems help ensure a low risk score, they may save costs through less intrusive tax inspections and potentially support more efficient tax reporting systems.

Contact details
Email: Shaun Willcocks
Tel: +44 (0)7866 688068