HMRC is ramping up the number of actions taken against finance directors and senior finance executives at the UK’s largest companies, with penalties for tax accounting failures rising to a record high.
According to law firm Pinsent Masons there has been a 17% year-on-year increase in actions against FDs at large businesses under the senior accounting officer (SAO) rules, with 188 fines levied for failures to maintain appropriate tax accounting arrangements or disclose any deficiencies identified.
The guidance came into force in July 2009 with the aim of increasing the focus on tax in company boardrooms and ensuring businesses have robust tax accounting and governance systems in place, and affects UK companies with a turnover of more than £200m or a relevant balance sheet total of more than £2bn for the preceding financial year.
Qualifying companies must designate an individual director or officer – usually the FD or other similar senior executive – to act as senior accounting officer and take full responsibility for the company’s tax accounting arrangements.
Under the guidance fixed penalties of £5,000 are charged to either the company or the designated individual if they fail to meet their obligations, for example submitting the relevant documentation in an accurate and timely fashion.
Increasingly hard-line approach
Despite initial panic among finance directors, fearing their career prospects would be damaged by the new rules HMRC initially adopted a ‘light touch’ approach for three years after the guidance came into force, with no penalties imposed.
However, with HMRC taking an increasingly hard-line approach the numbers are now on the rise – something which has not gone unnoticed on AccountingWEB’s Any Answers forum.
Number of penalties issued under senior accounting officer regime - Source: Pinsent Masons
Jason Collins, partner and head of tax at Pinsent Masons, commented that the figures marked a “new enthusiasm” at HMRC for holding individual senior executives to account for any wrongdoing or non-compliance.
“Senior accounting officers need to ensure that they take the process seriously and fully understand the requirements set out by HMRC”, added Collins. “Without adequate controls, the scope for error in tax accounting is huge - all processes need to be supported by appropriate planning, risk assessment, training and testing, to help minimise the potential for mistakes”.
“The systems in place to ensure tax compliance need to be as robust as possible, and stand up challenge by the Revenue.”
Senior accounting officers are potentially liable to two types of penalty. First, for failing to take steps to ensure the accounting arrangements are adequate. Second, for failing to provide an annual certificate either confirming the arrangements are adequate or disclosing details of the deficiencies.
Under SAO guidance companies are supposed to file a certificate every year either confirming their accounting arrangements are adequate or disclosing details of deficiencies.
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