The new Finance Act puts the onus on senior accounting officers to ensure tax accounts are accurately kept, but organisations should think carefully about who they select as their SAO, explains Gwen Souter.
The Finance Act 2009 obliges all UK incorporated companies with a turnover greater than £200m or gross assets exceeding £2bn (either alone or when aggregated with UK group companies) to appoint a senior accounting officer (SAO). This individual must take ‘reasonable steps’ to ensure appropriate tax accounting arrangements are in place and certify to HMRC whether this was the case throughout each financial year.
Yet with such weighty responsibilities - not to mention the threat of a £5,000 personal fine for each lapse and possible reputational damage - the role of SAO requires not only technical competence, but often a degree of strength and determination. Therefore, selecting the right candidate is key.
FDs: Not always an automatic choice The SAO is the director or officer who has overall responsibility for the company's financial accounting arrangements, so there is likely to be an expectation that the finance director (FD) will take on the role.
However, in large privately held businesses, an owner manager may oversee the company's finances to such an extent that the FD does not possess sufficient authority to scrutinise or change accounting arrangements. Nevertheless, boardroom expectations may be such that the FD feels unable to resist being nominated. Professional practice rules may also be a consideration.
Challenging situations In international business, issues may arise where accounting systems are imposed and paid for by an overseas group member. The SAO in the UK may then face real difficulties in evaluating and monitoring the relevant arrangements and systems. The appointment of a non-resident person as the SAO, while possible, gives rise to other issues regarding enforcement, for example.
Changes during a financial year may also cause difficulties, such as determining whether a newly acquired subsidiary has maintained appropriate arrangements throughout the financial year. Should HMRC seek to levy penalties against an SAO who has acted for a financial year but who subsequently leaves office or employment, that individual may not receive access to the company's correspondence with HMRC, accounts and records. Equally, an incoming SAO may have difficulty satisfying themselves that appropriate arrangements were in place throughout the financial year.
In all cases, the would-be SAO should consider whether they are appropriately placed to assume the personal obligations and potential liabilities of the role. While delegation may relieve certain pressures, it will not absolve the SAO from their responsibilities. The personal responsibilities should be understood from the outset, so any clarification required should be sought up-front from professional advisers or the company's customer relations manager (CRM) at HMRC.
The SAO will be keen to protect their position and hard-earned reputation. The implications of a fine being levied should be understood in advance, particularly in terms of relevant company policies and the SAO's employment contract. For example, they will want to know whether there are provisions for the company to reimburse penalties and appeal costs which do not arise from fraud or negligence on the SAO's part.
Bearing the burden Once an SAO has accepted the company's nomination, they will wish to be in a position to demonstrate, through appropriate documentation, that the required ‘reasonable steps’ have been taken. The first step is likely to be a review of the relevant systems and processes. As well as an internal review, the SAO may wish to establish whether the company's accountants and lawyers have any areas of concern. Again, they may also wish to consult with the company's CRM.
The relevant liabilities for this purpose are VAT, PAYE, insurance premium tax, SDLT, SDRT, PRT, customs duties and excise duties. Therefore, ensuring accounting procedures produce appropriate records, accounts and computations for all such liabilities is likely to be a significant and ongoing burden.