Budget 09: FD rule breaches collective board responsibility

A new statutory requirement for finance directors to certify that large companies are paying the correct amount of tax breaches the principle of collective boardroom responsibility and could create US-style Sarbanes-Oxley legislation, experts have warned.

The government has estimated that its proposal, announced in the Budget, could save £140m over four years by pressuring companies with poor systems to sharpen their tax calculations.

The requirement will give FDs a statutory duty to personally certify that adequate controls are in place to prepare accurate tax computations. FDs who fail to do so will have to pay a personal penalty of up to £5,000, the government has proposed.

The government believes that the rule will affect between 1,600 and 2,000 companies.

Due to be introduced in the finance bill this summer, the rule borrows principles from the controversial Sarbanes-Oxley Act 2002. This requires executives at US companies to demonstrate rigorous ‘internal controls’ against fraud and other business risks.

Critics say Sarbanes-Oxley has created another layer of regulatory bureaucracy and has failed to help avert corporate scandal and collapse.

Tax experts and a business group, criticised the FD liability proposal.

Roger Barker, head of corporate governance at the Institute of Directors, said the proposal flew in the face of the UK’s principle that boardroom’s had a collective responsibility for compliance with regulations.

‘I don’t think that targeting an individual [director] is a positive step,’ he said.

Sue Bonney, head of tax for Europe at KPMG, agreed that it was fair to expect big companies to maintain adequate accounting systems for tax calculations. But she added that any personal liability should be ‘proportionate’ and warned that large companies would not have much time to prepare for the new rules.

Law firm Berwin Leighton Paisner warned that the proposed regulation would ‘severely damage UK plc’ and ‘further encourage companies to emigrate’.

FD liability came as part of a host of measures designed to protect the tax take for government and continues the G20 focus on tax avoidance and evasion.

There was also a 'name and shame' policy for serial tax offenders as well as a number of proposals to tackle specific avoidance schemes.

The chancellor also said he expected the UK economy to return to growth by the end of 2009, though the economy this would would shrink by 3.5% and public borrowing will rise to £175bn.

Comment:

Alice in Wonderland estimates

Budget 09: It's a confidence game...but the chancellor didn't show

Thanks, Darling, for the British Sarbox