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Tax penalties for senior accounting officers

24th Aug 2009
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Everything you need to know about the new penalty regime that applies to senior accounting officers (SAOs) from 21 July 2009.

Schedule 46 of the 2009 Finance Act makes a senior accounting officer (SAO) personally accountable for their companies’ tax accounting arrangements. The rules are designed to strengthen tax compliance and reduce risk, and only apply to SAOs of large UK incorporated companies in financial years beginning on or after 21 July 2009.

Who does it apply to?

Qualifying companies are determined by their turnover or assets, and only apply to UK incorporated companies that have an accounting turnover of more than £200m or a relevant balance sheet total of more than £2bn in the preceding financial year (either alone or when results are aggregated with other UK companies in the same group).

Banks and insurance companies are subject to an assets test, as they do not show turnover in their accounts.

Certain companies and entities are excluded from this rule. These include:

  • Non-UK incorporated companies.
  • All forms of partnership.
  • Building and provident societies.

The SAO is the director who is in charge of the company’s financial accounting arrangements. However, in the case of corporate insolvency, an administrator or insolvency practitioner will not be classed as an SAO. The company must notify HMRC of the name of the person acting as SAO each financial year.

Main requirements

Under the new measures, the SAO is required to:

  • Ensure that the company establishes and maintains appropriate tax accounting arrangements.
  • Monitor the company’s tax accounting arrangements and identify any areas in which it is inappropriate.

The term ‘tax’ covers all taxes with the exception of environmental taxes, the CIS, and certain tax reporting requirements such as those on forms CT61 and SX1, and some schemes for relief and deduction at source (which are mainly operated by financial institutions).

The SAO must also take reasonable steps to have systems in place to enable them to provide HMRC with an annual certificate confirming the following:

“I, <insert name>, as senior accounting officer of the qualifying company/companies listed below, hereby certify that to the best of my knowledge and belief throughout the financial year ended <insert date>, the company/companies had appropriate accounting arrangements, or to the extent that it did not, an explanation is provided below”.

The certificate must be submitted no later than the end of the accounts filing period for the financial year.

Appropriate accounting arrangements are not defined in schedule 46, so the question of what is appropriate will depend on the size, complexity and nature of the business. It becomes more complicated when it comes to judging ‘tax sensitive decisions’.

HMRC expects that these should be based on ‘reasonable interpretation of accurate information in full knowledge of tax law and having taken appropriate advice’. HMRC is going to pursue a ‘light touch’ approach, but only for the first financial year after the legislation is introduced.

Although the legislation is not respective, it will apply to opening balances and so some checking may be necessary for the current period. The SAO faces a penalty of £5,000 if:

  • The certificate contains careless or deliberate inaccuracies.
  • They fail to provide a certificate.

They are subject to a maximum fine of £10,000 per financial year.

Companies can also face a penalty if they fail to notify HMRC of the name of the appointed SAO.

Penalties may be assessed not more than six years after the end of the filing deadline.

Appeals can be made on the grounds of reasonable excuse such as:

  • The death of a close relative
  • Postal problems
  • Serious illness

For more information, see the HMRC guidance, Duties of Senior Accounting Officers of Large Qualifying Companies.



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