Share this content

HMRC fines 115 finance director as SAO crackdown continues

16th Oct 2018
Share this content
FD under pressure

HMRC has fined 115 finance directors and other senior finance executives in the last year for failings in their company’s accounts, according to research by the law firm Pinsent Masons.

Introduced in 2009, the Senior Accounting Officer (SAO) guidance allows HMRC to issue penalties of £5,000 for failures to account for a company’s income and expenses according to requirements.

The rules apply to 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 another 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. The guidance aims to ensure that businesses have robust tax accounting and governance systems in place.

Last year, AccountingWEB reported a surge in the number of actions taken by HMRC against senior finance executives with penalties for tax accounting failures rising to a record high.

“By fining individuals, HMRC is setting an example that finance directors are not safe from fines if there are errors in a company’s tax affairs,” said Jason Collins, a partner at Pinsent Masons.

HMRC has received criticism for its enforcement of the SAO regime. In the first tribunal decision concerning SAO penalties which happened last year, the judge said the regime shouldn’t be applied on a one size fits all basis.

“The matters to take into account will include the size, complexity and nature of the business,” she said. “In my view [this] must also include matters more closely related to the role of the individual in question, such as the resources available to that individual and his or her authority to bring about any required change.”

The judge noted there’s a “significant distinction” between a company with a small finance team that is just over the qualifying company threshold and major financial institutions with large and sophisticated tax departments and systems.

The FD in that particular case managed to overturn the two fines levied on them.

Failure to take reasonable care

It was also reported that the UK’s largest businesses were hit with £59m in fines by HMRC in the last year (year-end December 31) for ‘careless’ behaviour in their tax affairs.

HMRC imposed the fines on businesses under the Large Business Directorate (LBD) for ‘failure to take reasonable care’ to ensure all information given is correct. The LBD oversees the tax compliance of 2,100 of the UK’s largest and most complex businesses.

Fines levied for ‘careless’ behaviour can be costly. If an error is first discovered by HMRC, the minimum fine is 15% of the additional tax HMRC believes it is owed, with a maximum amount of up to 30%.

HMRC issued a total of 199 fines for failure to take reasonable care in 2017, meaning on average each fine was for over £3.1m.

Replies (6)

Please login or register to join the discussion.

By Justin Bryant
16th Oct 2018 13:20

This is effectively extortion and HMRC has everyone over a barrel here, as following that previous Tribunal case no-one wants to appeal these, as even if you win there is no smoke without fire (and your laundry is washed in public etc.) and so it's best to avoid that career limiting problem and simply pay up even if you're totally innocent like that other bloke was (especially if you have an unusual name that comes up on Google searches).

Thanks (2)
Replying to Justin Bryant:
By carnmores
16th Oct 2018 13:39

oh come on this doesn't hold much water. the real extortion is for example late payment surcharges for small business VAT traders evening one day late. £5,000 is small beer for someone on £+150k

Thanks (0)
Replying to carnmores:
By Justin Bryant
16th Oct 2018 14:14

Yes; that too (with crazy penalties like that (muggers etc. get off with a lot less) is it any wonder people bend over backwards not to be VAT registered in the 1st place)!

Thanks (2)
By Liz M Falconer
18th Oct 2018 09:47

If only we could fine the HMRC for the mess that they create on the RTI Paye gateway and the hours we spend trying to get them to correct their mistakes

Thanks (7)
Replying to Liz M Falconer:
By carnmores
22nd Oct 2018 14:23

I have never had a problem with RTI what sort of problems arise. I seem to have problems with everything else!

Thanks (0)
By tedbuck
19th Oct 2018 12:35

Have to agree with Liz, the time wasted on trying to get HMRC to operate reasonably efficiently must cost the country millions. I reckon about 50% of calls to HMRC end up with the 'phone put down in despair and about half of the successful calls do not resolve the problem and if you're dealing with DMB you can put that to at least 75% because they really haven't a clue.
Perhaps we ought to have a complaints month where everyone complains to the Chancellor when the system cracks up. A good result of that would be that he couldn't then do his real job which would be to everyone's benefit.

Thanks (0)