Tax professionals have welcomed new HMRC guidance on the application of the Senior Accounting Officer legislation but have drawn attention to ‘significant changes’ in HMRC’s position, including the end of the ‘light touch’ approach.
Guidance in the new Senior Accounting Officer Guidance manual replaces all previous guidance relating to SAOs.
‘The revised guidance is positive news for both SAOs and their companies as it provides greater clarity around some of the more challenging aspects of the rules, including the circumstances in which penalties may or may not be levied,’ said Mark Kennedy, a director in the tax management consulting team at Deloitte.
Stephen Callahan, Head of Tax Risk and Governance at KPMG in the UK, said: ‘With the confirmation that the “light-touch” period is now over, SAOs will have to ensure that the accounting arrangements are being monitored on an ongoing, “real time” basis and that all significant tax risks have been identified and are being appropriately controlled.’
The rules set out in FA 2009 Sch 46 require the nominated SAO in a ‘qualifying company’ to ensure that the company establishes and maintains ‘appropriate’ tax accounting arrangements to allow the accurate calculation of corporation tax and other liabilities including VAT and PAYE. The SAO is required to certify that the company complies with the requirements or give details of its shortcomings, and there are penalties for non-compliance.
All SAOs should now have submitted their first certificate, Kennedy said. Deloitte data suggested that ‘around 30%’ had disclosed errors or weaknesses in their UK tax controls.
‘Given that the initial “light touch” of HMRC’s application of the rules has now ended, SAOs and their businesses need to ensure that any year one issues have been resolved and effective controls are maintained to minimise the exposure to penalty,’ he added.
KPMG said it understood that HMRC regarded ‘light touch’ as a once-only concession. Companies categorised as ‘non-low risk’ could now expect increased HMRC scrutiny over ‘clean certificates’, and HMRC would expect to see evidence of Board oversight, risk identification and assessment throughout the year. An annual assurance was now ‘unlikely to be sufficient’.
‘However, where companies first enter the SAO regime by virtue of the revised guidance (and not simply because they newly qualify under the existing turnover and balance sheet tests) HMRC have confirmed that a similar “light touch” approach will be applied to the first year after issuance of the revised guidance,’ the firm said.
KPMG said there were also significant changes in other areas: ‘Banks and insurance companies who were previously exempt from the turnover test will now be within scope; overseas activities of UK companies are now included within the purview of the regulations; and [there is] confirmation that SAO rules will apply where insolvency procedures are underway.’
PwC said HMRC had made it clear that the identity of the SAO was ‘a question of fact, not choice’. HMRC would challenge notification, the firm said, where the individual did not appear to have overall responsibility for the financial accounting arrangements.
SAOs could expect increasing attention from Customer Relationship Managers, the firm noted, and should ask themselves:
‘How comfortable are we as an organisation that we can articulate our tax risks and provide a robust trail of evidence to support compliance, both in-year and as the basis for the certificate?
‘Do we have an established business as usual process for monitoring and reporting on whether our tax accounting arrangements are fit for purpose as we go through the year? Is it sufficient or do we need to build on what we did for year one? What progress are we making with addressing any issues we found in previous years? Are there any new areas of concern?
‘Are we able to identify weaknesses which could have led to a material error or inaccuracy, even if in fact no actual error arose?
‘Are we taking proper account of any changes in our business or new legislative requirements, for example our new finance shared service centre or the introduction of the Real Time Information regime for payroll compliance?
‘Are we clear on who is the SAO and does that person know what their responsibilities are?’
Mark Kennedy said HMRC acknowledged some ‘uncertainty’ relating to the taxpayer confidentiality. ‘To address this they have announced that they intend to amend certain specific sections of the guidance to confirm their view that the failure of the SAO to submit a certificate can be disclosed to the company,’ he said.
What is a qualifying company?
HMRC guidance says at SAOG11100: ‘The [SAO]) provisions do not apply to all companies. They only apply to 'qualifying companies'. The responsible officers of a company must determine whether it is a qualifying company for a financial year ...
‘The company must:
‘Where a company is a member of a group, the responsible officers must aggregate its turnover and / or balance sheet totals with those of other UK incorporated companies in the same group to determine whether it is a qualifying company ...’
The turnover threshold is £200m (see SAOG11231) and the balance sheet threshold is £2bn (see SAOG11260).
Source: HMRC’s Senior Accounting Officer Guidance manual (published April 2012)
Tax professionals have welcomed new HMRC guidance on the application of the Senior Accounting Officer legislation but have drawn attention to ‘significant changes’ in HMRC’s position, including the end of the ‘light touch’ approach.
Guidance in the new Senior Accounting Officer Guidance manual replaces all previous guidance relating to SAOs.
‘The revised guidance is positive news for both SAOs and their companies as it provides greater clarity around some of the more challenging aspects of the rules, including the circumstances in which penalties may or may not be levied,’ said Mark Kennedy, a director in the tax management consulting team at Deloitte.
Stephen Callahan, Head of Tax Risk and Governance at KPMG in the UK, said: ‘With the confirmation that the “light-touch” period is now over, SAOs will have to ensure that the accounting arrangements are being monitored on an ongoing, “real time” basis and that all significant tax risks have been identified and are being appropriately controlled.’
The rules set out in FA 2009 Sch 46 require the nominated SAO in a ‘qualifying company’ to ensure that the company establishes and maintains ‘appropriate’ tax accounting arrangements to allow the accurate calculation of corporation tax and other liabilities including VAT and PAYE. The SAO is required to certify that the company complies with the requirements or give details of its shortcomings, and there are penalties for non-compliance.
All SAOs should now have submitted their first certificate, Kennedy said. Deloitte data suggested that ‘around 30%’ had disclosed errors or weaknesses in their UK tax controls.
‘Given that the initial “light touch” of HMRC’s application of the rules has now ended, SAOs and their businesses need to ensure that any year one issues have been resolved and effective controls are maintained to minimise the exposure to penalty,’ he added.
KPMG said it understood that HMRC regarded ‘light touch’ as a once-only concession. Companies categorised as ‘non-low risk’ could now expect increased HMRC scrutiny over ‘clean certificates’, and HMRC would expect to see evidence of Board oversight, risk identification and assessment throughout the year. An annual assurance was now ‘unlikely to be sufficient’.
‘However, where companies first enter the SAO regime by virtue of the revised guidance (and not simply because they newly qualify under the existing turnover and balance sheet tests) HMRC have confirmed that a similar “light touch” approach will be applied to the first year after issuance of the revised guidance,’ the firm said.
KPMG said there were also significant changes in other areas: ‘Banks and insurance companies who were previously exempt from the turnover test will now be within scope; overseas activities of UK companies are now included within the purview of the regulations; and [there is] confirmation that SAO rules will apply where insolvency procedures are underway.’
PwC said HMRC had made it clear that the identity of the SAO was ‘a question of fact, not choice’. HMRC would challenge notification, the firm said, where the individual did not appear to have overall responsibility for the financial accounting arrangements.
SAOs could expect increasing attention from Customer Relationship Managers, the firm noted, and should ask themselves:
‘How comfortable are we as an organisation that we can articulate our tax risks and provide a robust trail of evidence to support compliance, both in-year and as the basis for the certificate?
‘Do we have an established business as usual process for monitoring and reporting on whether our tax accounting arrangements are fit for purpose as we go through the year? Is it sufficient or do we need to build on what we did for year one? What progress are we making with addressing any issues we found in previous years? Are there any new areas of concern?
‘Are we able to identify weaknesses which could have led to a material error or inaccuracy, even if in fact no actual error arose?
‘Are we taking proper account of any changes in our business or new legislative requirements, for example our new finance shared service centre or the introduction of the Real Time Information regime for payroll compliance?
‘Are we clear on who is the SAO and does that person know what their responsibilities are?’
Mark Kennedy said HMRC acknowledged some ‘uncertainty’ relating to the taxpayer confidentiality. ‘To address this they have announced that they intend to amend certain specific sections of the guidance to confirm their view that the failure of the SAO to submit a certificate can be disclosed to the company,’ he said.
What is a qualifying company?
HMRC guidance says at SAOG11100: ‘The [SAO]) provisions do not apply to all companies. They only apply to 'qualifying companies'. The responsible officers of a company must determine whether it is a qualifying company for a financial year ...
‘The company must:
‘Where a company is a member of a group, the responsible officers must aggregate its turnover and / or balance sheet totals with those of other UK incorporated companies in the same group to determine whether it is a qualifying company ...’
The turnover threshold is £200m (see SAOG11231) and the balance sheet threshold is £2bn (see SAOG11260).
Source: HMRC’s Senior Accounting Officer Guidance manual (published April 2012)
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