HMRC clears up senior accountants' tax sign-offs

CLARIFICATION around the rules governing sign-offs on taxes by senior accounting officers (SAO) has been provided by HM Revenue & Customs.

Greater detail and clarification on penalties levied, procedure surrounding liquidation and administration and qualifying criteria on banks was published in a 160-page document.

It outlined HMRC’s interpretation of legislation included in the 2009 Finance Act, stating that qualifying companies must be incorporated in the UK and exceed £200m in turnover. Partnerships, crown estates, public bodies, building societies, industrial and provident societies and foreign-incorporated companies are all exempt.

A penalty will be chargeable on the party – either the company or the SAO – responsible for failure or inaccuracy.

Specifically, this can happen when a qualifying company fails to notify HMRC who has been its senior accounting officer in a financial year, where a senior accounting officer fails to ensure the company establishes and maintains appropriate tax accounting arrangements and where a senior accounting officer fails to provide a certificate to HMRC. Each penalty is a fixed amount of £5,000.

Senior accounting officers of large UK companies are required to personally certify that their controls over UK taxes are fit for purpose.

The measures require senior accounting officers to either issue a statement making clear the company had appropriate tax accounting arrangements throughout the financial year – known as an ‘unqualified certificate’ – or submit a ‘qualified certificate’, clearly stating their company did not have appropriate tax accounting measures in place throughout the financial year, explaining the nature of the issues.

The original legislation was brought in on June 2009, and all SAOs will now have submitted their first certificates.

Initially, a ‘light touch’ approach was adopted by HMRC on transgressions, but the rules will now be enforced more rigorously.

In a group situation, HMRC may not be able to charge more than one penalty per SAO or group for failure across the whole group or companies.

Mark Kennedy, a director in the tax management consulting team at Deloitte welcomed the changes.

He said: “This insight is timely as all SAOs should now have submitted their first certificate and, based on Deloitte data, it would appear that around 30% have 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.

“HMRC acknowledges one area of uncertainty remains, relating to the taxpayer confidentiality. To address this they have announced that they intend to amend certain sections of the guidance to confirm their view that the failure of the SAO to submit a certificate can be disclosed to the company.”