THE NUMBER of penalties issued personally to finance directors and CFOs at large businesses by HMRC for failures in tax accounting, has more than doubled over the last year, research by law firm Pinsent Masons has revealed.
In all, 155 fines were levied under the senior accounting officer regime in 2014/15, up 112% from the 73 issued the year before.
Introduced in 2009, the regime sees penalties of £5,000 levied personally against individual senior executives at the UK’s largest companies for failures to maintain appropriate tax accounting arrangements or to disclose any deficiencies identified.
The senior accounting officer regime requires qualifying companies to designate an individual director or officer – typically the CFO 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 the thresholds must individually comply.
According to Pinsent Masons, HMRC adopted a “light touch” approach in the early stages of the regime’s operation; no penalties were issued in the first three years of investigations, but the number of penalties issued has since risen sharply as the tax authority cracks down on poor tax practice.
Pinsent Masons partner and head of tax Jason Collins said: “Senior accounting officers need to ensure that they take the process seriously and fully understand the requirements set out by HMRC. The policies, procedures and systems in place to ensure tax compliance need to be as robust as possible- the Revenue is quite clearly not afraid to place them under the microscope.”
“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. Given the scale of the money flows in these businesses, one weak link in the reporting system could result in a large under-declaration of liability.”
An HMRC spokeswoman said: “These penalties reinforce HMRC’s drive to ensure tax is on the boardroom agenda and promote responsible management of tax. We want to make sure tax compliance is given adequate attention by a senior officer of the company.”
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