CFOs were hit by a record number of fines in 2015/16 under the Senior Accounting Officer (SAO) regime, with 181 fines dished out, according to Pinsent Masons.
The number of penalties of £5,000 levied personally against individual executives, for failure to maintain tax accounting arrangements or disclose deficiencies, went up by 17% from 2014/2015.
HMRC initially took a ‘light touch’ approach when the regime was introduced in 2009, with no penalties issued in the first three years of their investigations.
The number of fines issued since, however, has risen sharply, sending out a warning message that the Revenue is cracking down on any weakness in tax accounting procedures.
Fines levied by HMRC under SAO regime since 2009
Jason Collins, Partner and Head of Tax at Pinsent Masons, comments: “The SAO regime signals the new enthusiasm at HMRC for holding individual senior executives to account for any wrongdoing or non-compliance.”
The SAO regime requires qualifying companies to designate an individual director or officer – typically the Chief Financial Officer – to act as Senior Accounting Officer and take full responsibility for the company’s tax accounting arrangements.
Accounting arrangements are considered to be appropriate if they enable all relevant tax liabilities to be calculated accurately in all material respects.
The rules apply to UK businesses with a turnover of more than £200 million or a balance sheet total of more than £2 billion for the preceding financial year.
Each company in a group of companies meeting these thresholds must individually comply.
Jason Collins adds: “Senior Accounting Officers need to ensure that they take the process seriously and fully understand the requirements set out by HMRC.
“Without adequate controls, the scope for error in tax accounting is huge – all processes need to be supported by appropriate planning, risk assessment, training and testing, to help minimise the potential for mistakes.
“The systems in place to ensure tax compliance need to be as robust as possible, and stand up to challenge by the Revenue.”
Those appointed as senior accounting officers are liable for two types of penalty. The first applies for failing to take steps to ensure the accounting arrangements are adequate and the second can be levied for failing to provide an annual certificate that either demonstrates arrangements are adequate or discloses details of deficiencies.
New criminal offence
To add to the pressure, a new criminal offence of failing to prevent facilitation of tax evasion means large corporates need to risk assess whether their staff and associated persons might be tempted to facilitate tax fraud.
Jason Collins comments: “Large corporates are increasingly expected to take responsibility for the practices of their staff and supply chains.
“Management need to ensure that their risk assessment extends to cover staff throughout the organisation – 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.”