United Kingdom
SAO - time to take action? - Lucy Sauvage
FA2009 introduced new requirements for an appointed Senior Accounting Officer (SAO) within qualifying companies to take reasonable steps to ensure that their company/group establishes and maintains appropriate tax accounting arrangements, monitors these and certifies annually to HM Revenue & Customs (HMRC) the adequacy of the accounting arrangements, or explain any deficiencies.
Those companies effected by this legislation, particularly those who have not yet taken all the necessary steps to seek assurance that their tax accounting processes are ‘appropriate’ under the terms of the legislation, may wish to consider the experience BDO have gained to date in working alongside numerous clients in managing this task.
In reviewing their systems and processes for SAO purposes, most of the businesses we have worked with have identified weaknesses which are sufficient enough to at least require further investigation. In particular those taxes over which in-house tax departments have the least visibility (generally PAYE, SDLT and Customs and Excise duties) are proving to raise the most concerns. There are two significant points leading from these findings.
Firstly, whilst any material weakness in a process should be disclosed on the SAO certificate for that year, in many cases an inadequacy in the system itself will not necessarily have lead to an underpayment of tax. It is therefore advisable, where a weakness has been identified, for companies to perform investigative work to ascertain whether a tax underpayment has actually occurred, so that in disclosing the inadequacy assurance can be given to HMRC in this regard, thus reducing the likelihood that they will want to perform their own systems review.
Secondly, where an existing inadequacy in a process is not picked up in the first financial year covered by the legislation but subsequently comes to light and must be disclosed in a later year, HMRC will inevitably ask questions regarding why the SAO signed an unqualified certificate in the earlier year. The risks that arise in such a scenario are not just the penalties imposed under the specific SAO legislation (the general view is that these penalties will only be levied in the most serious cases), but also the negative impact this could have on the relationship of the company with HMRC. This includes the possible impact on the company’s HMRC-applied Risk Status, ultimately influencing the amount of attention HMRC focus on the company and the likelihood of HMRC conducting their own systems review.
For many companies the end of the first financial year under SAO legislation is looming, and the opportunity to identify potential weaknesses and implement remedial actions where necessary within the year is diminishing. We would strongly recommend, given our experience, that those charged with responsibility of being an SAO take action soon to ensure that they have a reasonable level of documented evidence to provide comfort that they will be signing an accurate certificate.
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