New approach from the Revenue could catch out Cambridge businesses


At A breakfast seminar the Cambridge based Ernst & Young, explained how the HM Revenue & Customs (HMRC’s) Review of Links with Large Business, known to many as the Varney Review, will impact on businesses in the region.

At A breakfast seminar this week, Cathy Taylor, the Cambridge based leader of Ernst & Young, explained how the HM Revenue & Customs (HMRC’s) Review of Links with Large Business, known to many as the Varney Review, will impact on businesses in the region. She explained how the risk assessment received by each business will impact on the amount of focus and attention that they will receive from HMRC over the next few years.

Where businesses in the region have been classified as high risk explained that they face new and more intensive investigative regimes which will result in higher penalties where errors or mistakes are found in tax return filings.

She said: “When the Revenue comes to call, if you are classed as a high risk business, its interventions and investigations involve requests for a huge volume of documents, reviews of the implementation of planning and accounting systems reviews. Lack of knowledge and understanding of this process can hamper your relationship with the Revenue and be a strain on resourced.”

Mrs Taylor added that the risks associated with the new regime when they crystallise are further increased due to a new and more onerous penalty structure that starts in April 2008 and also the HMRC’s Litigation and Settlement Strategy, which will reduce the opportunity for settling issues via ‘package deals. Mrs Taylor pointed out that HMRC is no longer able to agree a single settlement sum to cover a range of open issues unless that amount is broken down across each of the individual disputed issues.”

She said this change had come about as a result of concerns that many Inspectors of Taxes were prepared to reach negotiated settlements with taxpayers and their advisors that did not adequately reflect the risk/ reward ratio particularly where tax avoidance is deemed to be involved. Going forward any disputed issues involving any kind of tax planning that might be construed as tax avoidance will need to be signed off by interested parties in HMRC before any settlement can be agreed by individual Inspectors.”

In response to growing demand from the Cambridge business community to better understand the implications of HMRC’s new approach, Ernst & Young hosted the seminar at its Newmarket Road offices.

Concluding, Mrs Taylor said: “To help the region’s business community get to grips with the HMRC’s new approach to engaging with businesses and its risk profiling and penalty regime. I have major concerns after the new penalty guidelines which indicate that clients could face civil penalties of 15% - 30% for what HMRC construe as “failure to take reasonable care”. In the past penalties only applied where adjustments to tax returns arose from “neglect”. It now seems clear that clients are going to have to ensure that systems and processes in their accounting functions are risk assessed so that a charge of failing to take reasonable care is not levied.”

For those who were unable to attend and for anyone requiring further information please contact Cathy Taylor or Karen Shoebridge on 01223 557000.

Ernst & Young is one of the leading professional services firms in the UK, providing integrated, financially based solutions to businesses across a wide variety of sectors. Our services fall under three broad headings – Assurance and Advisory Business Services, Tax and Transaction Advisory Services.

The UK firm employs nearly 10,000 people, with 6,000 staff and Partners in the London office – making it the largest Ernst & Young office globally. For the financial year ending June 30 2007 revenues were £1.23bn.

Globally, Ernst & Young member firms operate in 140 countries with more than 114,000 partners and staff. Worldwide revenues for year to 30 June 2006 were US$18.4 billion.


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EY is a global leader in assurance, tax, transaction and advisory services. With over 400 employees in our Cambridge and Luton offices, our teams provide a range of services to a variety of sectors, including manufacturing, life sciences, consumer products and retail, technology, real estate and construction, health, and the public sector. The broad array of companies across the East allows us to bring real, relevant and key insights to our clients.