HMRC release new Banking Code of Practice guidance with notable updates

HMRC release new Banking Code of Practice guidance

The guidance was released on 23 December 2019. Banks should consider their governance processes (existence of and adherence to) accordingly.


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HMRC issued their updated Banking Code of Practice guidance alongside the report on the operation of the Code on 23 December 2019. The updated guidance includes new sections on potential tax planning issues identified during risk assessment, purpose tests and the interaction between the Code and the Senior Accounting Officer (SAO), Enablers and Corporate Criminal Offence (CCO) regimes. Updates have been made to the commentary on supporting genuine commercial transactions and HMRC will now provide an explanation if they consider a transaction to be contrary to the intentions of Parliament, but Code Green due to an established practice, providing more transparency into how HMRC make Code decisions. The new guidance includes an important change in how HMRC will respond to Code approaches as regards a bank’s ‘reasonable belief’.

A new section explains HMRC’s processes where potential tax planning has been identified during a risk assessment. If HMRC become aware of planning they believe should have been considered under the Code, they will ask the bank whether such an analysis was undertaken and the outcome. If the bank had not adequately considered the Code prior to HMRC raising it as an issue, HMRC may seek to question whether the bank’s governance is Code-compliant, even if the planning itself was ‘Code Green’. This illustrates HMRC’s view that Code-compliance extends beyond simply acting in accordance with the intentions of Parliament, it also requires having the governance in place to support this, with the necessary evidence of decision making.

The updated guidance suggests that, because the existence of a targeted anti-avoidance rule (TAAR) containing a motive test is prima facie evidence that Parliament did not intend a blocked advantage to be available to taxpayers with a ‘bad’ purpose, it will usually be the case that an arrangement which is caught by a TAAR is inherently ‘Code Red’. This potentially raises the stakes on tax disputes focusing around the application of motive tests, as conceding that a TAAR applies may not only result in additional tax to pay but also a challenge under the Code.

The ‘reasonable belief’ commentary has been updated, indicating a change in how HMRC consider Code approaches. Previously HMRC would consider the bank’s reasonable belief as part of their review of whether the proposed transaction was contrary to the intentions of Parliament, and if they determined that the bank had a reasonable belief the outcome was not contrary to the intentions of Parliament, HMRC would provide a ‘Code Green’ response. Now, if HMRC consider the transaction’s result to be contrary to the intentions of Parliament, and the planning involved has not become established practice, they will provide a Code Red response. If the bank disagrees with HMRC’s assessment, HMRC will usually enter into further discussions with the bank, to come to a common view of the intentions of Parliament and/or established practice. If there is continued disagreement, the bank will have the opportunity to provide a written explanation of the reasons it still believes the transaction would be Code Green, which should take into account the discussions with HMRC. If HMRC conclude that the bank’s belief was a reasonable one, they will confirm they consider the transaction Code Green.

Most banks should be reviewing their tax governance to build in DAC6 compliance, and the updated guidance makes it clear that HMRC expect appropriate tax governance to be operational and evidenced; it is not enough to have a published tax strategy and governance guidelines in place.

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