Personally Responsible - New rules for the Senior Accounting Officer
By Claire North
Finance Act 2009 introduced new requirements for Senior Accounting Officers (SAO) of large companies. The main duty of the SAO, as set out in the legislation, is that "The senior accounting officer of a qualifying company must take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements".
When the Budget first introduced the SAO rules, the view was that it would affect companies that met the requirements of a large company under the Companies Act 2006. However, this has been narrowed considerably to only the largest companies in the UK. A qualifying company under the new legislation is a UK incorporated company where, either standing alone or when its results are combined with other UK group companies, it has relevant turnover in the previous financial year of more than £200 million or a balance sheet total of more than £2 billion.
A Burden Too Far?
The new responsibilities of the SAO are to certify annually that the tax accounting arrangements in operation are appropriate to enable accurate calculation of the company's relevant liabilities, in all material respects. The Commissioners of HMRC must be provided with a certificate for each financial year for each company, stating that this is the case. There is a suggested format in the guidance issued by HMRC that can be followed. The certificate must be submitted no later than the end of the period for filing the accounts for the financial year. If the SAO does not comply with their duty, they can incur a penalty of £5,000. If a certificate is not provided or if it contains a careless or deliberate inaccuracy, then they will be liable to a penalty of £5,000. The maximum penalty that an individual SAO can receive is £10,000 for any financial year, irrespective of the number of companies in which they hold the position of SAO.
Who is the SAO?
The all important question is ‘Who in the company will receive the title of SAO?’ The Finance Act is reasonably vague which means that each company gets to nominate someone suitable who is the 'director' or 'officer' with overall responsibility for the company's financial accounting arrangements. The 'director' includes any person occupying the position of a director, by whatever name called, and an 'officer', in relation to a body corporate, includes a director, manager or secretary. Whoever is chosen as SAO will have a further burden placed on them by these new rules, as well as their many other external pressures.
There are a number of issues that this new piece of legislation raises in addition to deciding who is going to be the SAO.
What are the tax accounting arrangements? The answer to this question is helpfully provided in the guidance issued by HMRC. The tax accounting arrangements are the framework of responsibilities, policies, appropriate people and procedures in place for managing tax compliance risk, as well as the systems and processes which put this framework into practice.
But how can the entire end to end accounting processes be checked by one person?
How should a company make sure that the SAO understands their role and responsibilities included in this aspect of compliance?
Practically, what steps should be taken to make sure that these guidelines are adhered to?
Companies should have already started to consider what actions they need to take to bring their accounting systems in line with the current requirements. The SAO obligations will apply to accounting periods beginning on or after 21 July 2009. There will be no transitional period; however, as the guidance was released on 17 August 2009, it feels only fair that HMRC has allowed the SAO to be treated as having taken reasonable steps in respect of the first financial year. This 'light touch' will only apply to the first financial year after the introduction of the legislation.
Time should be taken to assess what tax accounting arrangements are currently in place for all taxes. All taxes include Corporation Tax, PAYE, VAT, Insurance Premium Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax, Petroleum Revenue Tax, Customs Duties and Excise Duties. It is worth remembering that dormant companies are also included and have a filing requirement even though there may not be any accounting arrangements that the company has to consider.
One of the most important requirements must be to facilitate discussion between people from the relevant departments. This could include not only the obvious Finance and Tax departments but also Internal Audit, Risk, HR and Procurement. It may be useful for someone to oversee the whole process to check that the current position has been established and the arrangements are monitored going forward. This may be an external consultant or internal resource that has the experience alongside the accounting and tax skill set to work with people from all departments, to ensure the smooth running of bringing accounting systems in line with the requirements and enable confidence in the certification. As mentioned above, failure to meet the new requirements could result in the SAO being held personally responsible and subject to a financial penalty.
Claire is a manager at Bourne Business Consulting LLP, with experience in both asset taxation and corporate tax reporting, having assisted on projects for a number of companies including those within the retail, real estate, utilities and infrastructure sectors.