FDs lurch into unknown

Legislation underpinning a tax compliance crackdown on finance directors in the UK’s 2,000 biggest companies is so vague that experts and FDs still don’t know how to meet its demands.

FDs are now required to personally sign off on their companies’ tax arrangements but the legislation is so loosely worded, according to tax advisers, it remains a potential minefield despite already coming into force.

Advisers have panned the imprecise nature of the wording for senior accounting officers to take “reasonable steps” to ensure the company maintains “appropriate tax accounting arrangements” and in particular, monitors the accounting arrangements of the company “to identify any aspects in which those arrangements are not appropriate tax accounting arrangements”.

“We are very concerned at the potential for headaches,” said Richard Baron, head of tax at the Institute of Directors.

“The government could so easily have consulted in advance on the principle of this one. We might even have found a way that would not have created the administrative burdens, and that would not have required vague legislation.

Instead, they just went at it like a bull at a gate.

“You can see how little thinking they had done, even internally, because as soon as the finance bill was published, they announced amendments.”

Businesses must also ensure they establish, maintain, monitor and certify appropriate accounting arrangements for the entire company. This includes identifying “any respects in which those arrangements are not appropriate”.

The maximum penalty for non-compliance is relatively small at £10,000, but the extra workload and the potential for not meeting the rules form the main concerns.

John Whiting, head of tax policy at the Chartered Institute of Taxation, said: “There’s a hell of a lot of work going on by finance directors and they are saying ‘how on earth are we going to achieve this?’”

“It’s like being told to take a train to Brighton beach on a Sunday when half the tracks are under repair. No disrepect to Brighton, but it’s not the nicest, sandiest beach in the world either,” said Whiting.

“FDs will want assurance in detail that the systems meet the standard, and that will mean a lot of work,” added Baron.

KPMG flagged up the scope of the legislation earlier this month. “Our view is that companies should be seeking at least to understand their current operating framework and the end to end tax arrangements so that they are better prepared to deal with potential shortcomings sooner, rather than later,” the firm said in a briefing paper.

After officially kicking off in July, the legislation came into effect on 1 October for those with accounting periods ending on 30 September.

An HM Revenue & Customs spokeswoman said: “Large companies make a major contribution to the Exchequer and while most already maintain appropriate tax accounting arrangements some do not. The government made a number of changes to the legislation to meet businesses’ concerns.”

Further reading

Finance act gives FDs an unreasonable burden