In compliance with Schedule 19 of the Finance Act 2016 Vertu Motors plc and its subsidiaries publish the following tax strategy which documents its approach in managing its tax affairs.
For the purposes of the Group's tax strategy, tax is defined as all forms of direct and indirect charges including corporation tax, VAT, employment taxes, stamp duty and excise and import duties.
The objective of this paper is to document the Group's strategy for the management of the costs and risks associated with taxation, both direct and indirect. This paper will be subject to annual update and review by the Audit Committee.
The Group is a profitable and cash generative business operating in a low margin sector. Our ability to maintain this business model depends directly upon the ability of the business to develop retail brands which support the manufacturer partner brands and underpin a consistently high-quality customer experience. The fiscal and statutory structures that underpin the Group mirror operational management structure and manufacturer relationships.
The Group's strategic aim is to pay, on a timely basis, those taxes that are fairly levied in the UK, and to maintain a high quality of tax management and compliance while minimising tax risks and preserving the Group's integrity and reputation. As the Group's activities revolve around the sale of motor vehicles and related services through owned and leased sales outlets, which have been acquired since incorporation in 2006, we expect that the result of the strategy will be a medium term effective rate of tax (ETR) which is in line with the UK rate of tax on corporate profits. Any shortfall compared to the UK rate will represent the impact of capital allowances and any excess will represent the effect of non-deductible expenditure.
The core drivers of the Group's tax strategy are as follows:
All significant investments and strategic developments are reviewed by the Deputy CFO and Chief Financial Officer who will ensure that any potential tax consequences of new developments are considered on a timely basis.
The Group has fulfilled all its obligations in regard of the Senior Accounting Officer legislation and has also undertaken steps, under the Corporate Criminal Offence legislation, to profile and manage the risk of failing to prevent the facilitation of tax evasion. CCO training has recently been undertaken by the Group's senior finance team and this will be revisited annually.
HMRC perform their Business Risk Reviews, (BBR), in respect of Systems and Delivery, Governance, and Approach to Tax Compliance. Based on HMRC's criteria the Group's internal tax risk and control processes are summarised below:
| Systems and Delivery |
|---|
| Systems and processes are sufficient to deliver timely and accurate returns, declarations, payments and claims. Delivery of timely and accurate returns, declarations, payments and claims. All returns and payments are made on time. HMRC interventions have not identified significant errors. Maintenance of risk and control matrices shared on request from HMRC. Maintain documented tax policies and procedures and share these on request from HMRC. Undertake assurance checks and testing of tax policies and procedures on a regular basis. Where key fiscal areas are outsourced, reasonable steps have been taken to ensure the provider is suitably competent in order that transactions which impact on tax are properly accounted for. |
| Internal Governance |
|---|
| Clear accountabilities up to and including the Board for the management of tax compliance risk and tax planning. Appropriate tax accounting arrangements so as to enable accurate tax reporting. Keep HMRC informed of how the business is structured and where different parts of the business are located. Fulfil filing, notification, due diligence, reporting regarding Senior Accounting Officer legislation, Country by Country Reporting and Tax strategy publication. Appreciate the potential liability under the Corporate Criminal Offence legislation and steps have been taken to profile and manage the risk of failing to prevent the facilitation of tax evasion. Any significant uncertainties or irregularities are communicated to HMRC promptly. Transactions or issues with significant tax implications are discussed in real time and communications with HMRC are managed collaboratively. Prompt, accurate and helpful answers are provided in response to HMRC's queries and requests for information. |
| Approach to Tax Compliance |
|---|
| Maintain an open and transparent relationship with HMRC. Have a documented tax strategy that is used to steer all tax considerations. This tax strategy is regularly annually and updated when appropriate. Are open with HMRC in real time about how tax compliance risk is managed across all relevant taxes and duties. Are not involved in tax planning other than that which supports genuine commercial activity and fully disclose the facts and any legal uncertainty of relevant transactions. Do not structure transactions in a way which gives a tax result contrary to the intentions of Parliament. Are not directly involved with illicit trades and are active in mitigating illicit trades within their supply chain. Have not incurred an inaccuracy penalty, including any penalties that may have been suspended. |
To date HMRC's risk reviews have not resulted in any significant errors. HMRC have consequently defined Vertu's risk assessment as low. It is our objective that this low risk rating will be maintained.
The dealership, ancillary business and central accounts functions are responsible for the processing of transactions in accordance with the standard accounting procedures for both indirect and direct taxes. For corporation tax the Group Tax Manager and our external advisors, Deloitte, are responsible for the review and checking of the information prior to submission to HMRC. The Group Tax Manager produces monthly and quarterly VAT error reports and any exceptions are rectified at dealership level. The dealership VAT returns are produced digitally from our underlying accounting records and consolidated digitally into the Group VAT return. These are reviewed by the Group Tax Manager before submission to HMRC via their API link and hence the Group is fully compliant with HMRC's Making Tax Digital.
The Group's activities are carried out by 100% owned subsidiary companies.
Due to the significant ongoing investment in the Group's retail property portfolio, in order to meet manufacturer requirements and to enhance the customer experience, the appropriate treatment of Capital Allowances for corporation tax has been identified as an area of focus by HMRC. The methodology adopted by the Group has been agreed with HMRC following a process of consultation which was completed in 2016.
The group's operations include a limited amount of exempt supply of financial (brokerage of third-party credit and insurance) products. For each VAT return these supplies are quantified and a partial exemption restriction is then applied to the VAT recoverable from HMRC using the HMRC standard method.
Following guidance issued by HMRC regarding discrepancies between electronic invoices on finance proposal systems and dealer management system invoices, quarterly checks are performed to ensure finance companies' esig invoices match our system generated invoices.
The Group also maintains a Capital Goods Scheme (CGS) register and an annual CGS adjustment is made.
The Group sells a small, (approx. 10 per annum), number of vehicles to wheelchair user customers who are eligible for zero-rating of the vehicle. Given the small number of vehicles concerned, these transactions are all referred to, and approved by, the central tax team at Vertu House.
Similarly, the Group sells a small number of vehicles to customers resident outside the UK. Again, all such potentially zero-rated transactions are referred to the team at Vertu House for approval.
The central Group payroll function monitors any changes required in the collection or reporting of payroll taxes. The up to gross input for the payroll is prepared at the dealership level. Monthly payments for PAYE and NIC are made by reference to the calculation prepared by the central payroll department. The gross to net pay calculation is run by a third party provider, Core HR, a well-established payroll software provider.
During the current financial year, the Group will move to another provider, Ceridian, with consultants BDO assisting with the transition.
We currently have both a PAYE Settlement agreement and a PAYE dispensation in operation.
Rates and any other local Property taxes are monitored by the group property function, and external consultants are used periodically to ensure that assessments have been made and updated on a valid basis. Where appropriate, assessments will be challenged.
We seek external advice from Muckle LLP and Deloitte in respect of stamp duty on property transactions and other capital acquisitions and disposals.
Customs duty is negligible to the Group as transactions are predominantly UK to UK. There are no significant other significant taxes arising from the Group's operations.
The Group falls within the parameters of a deemed contractor in respect of the Construction Industry Scheme (CIS). However, as we only incur construction expenditure on property used within our own business the Group is exempt from the CIS. This position has been confirmed by HMRC.
The Internal audit function monitor our CCO compliance and the CCO Risk Register and Associated Persons Register have been embedded into the Group's Risk Management Framework through a biannual Risk Champion's Report, an annual review of processes and issues by the Audit Committee and a review every two months by the Compliance Committee of any financial crime breaches and associated corrective action.
Colleagues have been trained on CCO and the Colleague's handbook includes clear whistle blowing procedures, Vertu's non-tolerance policy in respect of tax fraud and disciplinary procedures for breach of policy.
Vertu's externally published tax strategy states our non-tolerance policy with regard to tax fraud.
The Group Tax Manager ensures that the payment and compliance of direct and indirect taxation is managed on an accurate and timely basis. The Group Tax Manager also ensures that HMRC enquiries and audits are dealt with in an open, honest, and timely manner.
Working with the central accounts department, the Group Tax Manager will ensure accounting entries for direct taxation for the Group's reported numbers and subsidiary accounts accurately reflect the taxation of the results of that period. The team will endeavour to minimise exposure to fluctuations in the effective tax rate of the Group through rate forecasts based upon expected profits for the financial year.
Ad hoc projects will be performed, either on own initiative or on request, and will be completed on a timely basis to ensure any commercial, reporting or payment requirements are met.
The Group's tax posture is risk averse and has maintained a HMRC Group Low Risk rating since 2015.
Strategic and operational decisions will be commercial rather than tax driven, and while tax planning ideas will be considered they will only be adopted when they fit with the commercial facts of the decision being taken.
The Group will not adopt fiscal structures or tax "products" which require formal notification to HMRC. The Group also will not structure transactions in a way which gives a tax result contrary to applicable legislation.
The Group has established standard accounting policies and procedures which are operated by all dealerships using a common general ledger and chart of accounts. The accounting procedures specify how tax sensitive items are to be treated at the dealership level. At year-end each Group business/dealership completes a tax pack which provides the further analysis required for the preparation of the corporation tax returns. These packs are reviewed by the Group Tax Manager who uses the data to prepare draft tax returns which are then finalised by Deloitte.
The monthly business measurement, KPI's and management accounts are all prepared on the basis of operating profits before tax, and no Corporation Tax charge is levied on the individual dealerships. This is considered to be appropriate at both the operating business level and the dealership level because it ensures that variables which are not within the control of the divisional and dealership managers (tax rates) do not influence local operational decision making.
The Chief Financial Officer is the Senior Accounting Officer (SAO) for the purposes of UK Taxation legislation. The SAO has the statutory responsibility to sign the HMRC returns which confirm that proper accounting and tax return procedures have been adopted by the company and the Group. In addition to the procedures described in this document, the SAO will engage the advisors (currently Deloitte) to review the underlying procedures which generate the Taxation return.
The Group is fully compliant with HMRC's Making Tax Digital (MTD) for the Group's quarterly VAT returns. The dealerships' quarterly VAT return models are digitally linked to the underlying accounting records and are then digitally uploaded into BI, our consolidation accounting package. The quarterly VAT returns are prepared by the dealerships and consolidated centrally and reviewed by the Group Tax Manager in BI. At central level the Group Tax Manager performs partial exemption and Capital Goods Scheme calculations. Our consolidated VAT return is then submitted through the HMRC's API using Deloitte's cloud-based software.
We expect that the application of the Group tax strategy will result in a headline effective rate of tax that is in line with the UK rate of tax on corporate profits. Any variance to the UK tax rate will represent the effect of a very low level of non-deductible expenditure offset by the impact of Capital Allowances which, due to the impact of acquired property accounted for in accordance with IAS 12, results in a reduction in the ETR.
Tax provisions are established in the context of applicable accounting standards, whilst considering both those individual tax exposures which may be identified from time to time, and the balance sheet position (including both recognised and unrecognised items).
We maintain an open and honest relationship with HMRC and keep them informed in any changes to the business' structure. If we require any advice in the correct treatment of indirect taxes, we will contact HMRC via email using the central email address or via the CCM directly and if we have any issues and irregularities with significant tax implications, we inform HMRC promptly. If we require any advice in respect of corporation tax, we will seek advice via our external agents Deloitte.
External agents, Deloitte, are used for the review and submission of the Group's corporation tax returns. In addition, Deloitte carry out capital allowances reports where the Group has incurred significant capital expenditure.
We will also seek external advice on any potential acquisition and disposal in order that all significant exposures are identified and that taxes are accounted for correctly.
We ensure that the dealership accountants receive adequate training on induction and annually in pre-year end training, in the application of the group accounting policies and procedures, motor industry issues and other "Hot Topics", and that the central function (Group Tax Manager, Company Secretary, Chief Financial Officer) maintain an appropriate level of experience and training to fulfil their review and oversight roles.
The systems and processes are fully integrated and standardised throughout the core Group and ensure that timely and accurate returns and payments are maintained. The processes and systems used to compile indirect and direct taxes (Keyloop, BI and excel) are reviewed on a regular basis to ensure that they are up to date and any improvements are implemented. The Group's tax policies, available on the Group's intranet, are updated regularly and any changes to tax legislation are implemented by the Central Function in an accurate and timely manner.
The Group tax department fulfils the role of specialist regarding UK taxes. In addition, the central team is responsible for ensuring that the correct accounting entries are reported and processed in the subsidiary accounts for both current and deferred taxes at half and full year end.
| Group | Dealership | |
|---|---|---|
| Indirect Taxes (VAT) | ||
| Day to day record keeping | ||
| Preparation of returns - detail | ||
| Preparation of returns - consolidation and review | ||
| Correspondence with tax authorities | ||
| Advice regarding structure/changes to procedures | ||
| Direct Taxes (IT) | ||
| Day to day record keeping | ||
| Preparation of returns - detail | ||
| Preparation of returns - consolidation and review | ||
| Correspondence with tax authorities | ||
| Advice regarding structure/changes to procedures | ||
| Payroll Taxes (PAYE/NI) | ||
| Day to day record keeping | ||
| Preparation of returns - company reporting requirements | ||
| Correspondence with tax authorities |