United Kingdom
Personal Accountability: a time to take action - Tony Spillett
Senior accounting officers (SAOs) of large companies will soon be required to provide personal certification that their accounting systems are capable of ensuring accuracy in their tax reporting.
The recent Budget introduced proposals which could see SAOs personally liable for penalties of up to £15,000 per year for non-compliance. We understand this may be reduced to £10,000 in the final legislation. The move is set to create uncertainty amongst the finance professionals’ community.
Senior accounting officers of large companies are to be required to provide an annual certificate to HM Revenue & Customs (HMRC) stating that adequate systems are in place to produce accurate returns across all forms of tax.
Penalties can be raised personally on SAOs for non-compliance. The new rules are to be introduced later this year and the decision to make SAOs personally responsible for the adequacy of their company’s tax accounting systems has raised huge concerns amongst the business community.
Business affected by the proposals are those with in excess of at least two of the following three items; turnover above £25.9m, a balance sheet total greater than £12.9m and with more than 250 staff. However, we understand that the proposals may be amended to cover only the largest groups, those with HMRC Customer Relationship Managers. These are, broadly, groups with over £200m of UK turnover and the FTSE 350.
The proposals apply to all taxes, including employment, direct and indirect taxes and state that SAOs will be required to take three actions:
- Take reasonable steps to ensure the company/group establishes, maintains and monitors appropriate tax accounting arrangements.
- If the arrangements are not appropriate, they must provide the company’s auditors with a suitable explanation (this may be withdrawn in the final rules).
- Certify annually to HMRC that adequate systems are in place to produce accurate tax returns. (If the systems are not adequate, the SAO must prove an explanation has been given to the company’s auditors, unless the above action is withdrawn.)
A penalty of £5,000 will be raised on the SAO for a failure to comply with each and any of these obligations. Additional penalties can be raised on the company.
The proposals follow on from HMRC's increased focus on reviewing business systems following the review of links with large business in 2006. To date, this has focussed on encouraging compliance through the risk review process. The new proposals are intended to reinforce HMRC's view of the importance of systems to enable "the right tax at the right time.”
The proposal could potentially place significant additional compliance burdens on businesses. The systems requiring reviews include IT systems and tax-relevant accounting, reconciliation and consolidation processes such as home-grown spreadsheets and bespoke internal workflows.
A company cannot choose the SAO randomly. The SAO is the director or officer of the company who has overall responsibility for the company’s financial accounting arrangements. HMRC estimates that 60,000 companies and 1,600 to 2,000 SAOs will be impacted by the original proposals, which will be applicable to returns for accounting periods beginning on or after the date of Royal Assent. If the proposals are restricted to just groups with Customer Relationship Managers then they will only cover the largest 2,000 groups.
The measures set out will form part of an informal consultation process of which BDO is a part. If you wish your voice to be heard please speak to either Tony Spillett (tel. 020 7893 3315) or Ed Dwan (tel. 0161 817 7676) who are representing BDO in this matter.