A record number of finance directors at the UK’s largest businesses faced fines of £5,000 for failures in tax accounting last year, according to analysis by law firm Pinsent Masons, which says HMRC is getting tougher on any failures to comply with the senior accounting officer (SAO) regime
HMRC levied 181 fines last year for failures to maintain appropriate tax accounting arrangements or to disclose any deficiencies identified, a 17% rise compared with 155 penalties issued the previous year.
The SAO regime was first introduced in 2009 and requires qualifying companies to designate an individual director or officer - typically the chief financial officer or other similar senior executive - to act as senior accounting officer and take full responsibility for the company’s tax accounting arrangements.
The rules apply to UK businesses with a turnover of more than £200m and/or a balance sheet total of more than £2bn for the preceding financial year. Each company in a group of companies meeting these thresholds must individually comply. Accounting arrangements are considered to be appropriate if they enable all relevant tax liabilities to be calculated accurately in all material respects.
No penalties were issued in the first three years of investigations, suggesting HMRC initially adopted a ‘light touch’ approach. However, 46 fixed penalties were handed out in 2012/13, rising to 73 in 2013/14 before more than doubling to 155 and now 181.
Senior accounting officers are potentially liable to two types of penalty, for failing to take steps to ensure the accounting arrangements are adequate, and/or for failing to provide an annual certificate either confirming the arrangements are adequate or disclosing details of the deficiencies.
Jason Collins, partner and head of tax at Pinsent Masons, said the increase in penalties signalled a hardline approach by HMRC, and warned that senior accounting officers need to make sure they understand the process and requirements fully.
‘The SAO regime signals the new enthusiasm at HMRC for holding individual senior executives to account for any wrongdoing or non-compliance,’ Collins said.
Pinsent Masons highlights that the introduction of a new criminal offence – failing to prevent facilitation of tax evasion – means large corporates will now need to risk assess whether their staff and other associated persons might be tempted into facilitating tax fraud by customers and suppliers.
Collins said: ‘Management need to ensure that their risk assessment extends to cover staff throughout the organization and wider supply chain.
‘HMRC will hope that corporates may go further and start thinking about whether they are doing things which facilitates aggressive avoidance, as opposed to evasion – and whether they should stop this to avoid risks to their reputations.’
