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HMRC cracks down on finance directors

6th Mar 2017
Editor AccountingWEB
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Cracking under pressure
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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

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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.

Last year HMRC issued an update to its senior accounting officer guidance (SAOG) to allow the electronic submission of certificates.

 

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Replies (5)

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By mrme89
06th Mar 2017 15:28

Businesses with a £200m turnover / £2b balance sheet will not be deterred by a £5000 penalty.

In fact, when compared to SA penalties, it's completely disproportionate.

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By Dib
07th Mar 2017 14:19

Actually it is a penalty levied on the SAO personally, not the company

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Hallerud at Easter
By DJKL
06th Mar 2017 15:39

Right-hands up who here is a SAO covered by these rules?

What, no one?

Reality is this legislation is unlikely to impact anyone reading A Web, frankly if you are the SAO at any company/group of the size required I doubt you have time to pop in here.

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By Tom Herbert
06th Mar 2017 16:19

Reasonable points both, many thanks.

mrme, I believe the intention behind the rules was more to name and shame offenders rather than close the tax gap with the fines, but regardless your point stands - would such a 'black mark' matter to such a large business/big league FD?

And DJKL, we did have a query last year about this very thing on Any Answers:

https://www.accountingweb.co.uk/any-answers/sao-penalties

Although it didn't receive any replies... shame. Believe it or not we are quite a broad church - although some prefer to lurk in the vestibules (to labour the analogy).

All the best,

Tom

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By The Black Knight
08th Mar 2017 10:58

Another toothless tiger to divert attention away from HMRC not investigating and collecting the tax due.
Directors could already be fined for not keeping proper accounting records and other defaults. In any case I expect the company will indemnify the directors anyway. HMRC need to pull their finger out and do their job rather than bleeting and requesting more powers that they don't use. It really is pathetic.

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