125 CFOs fined by HMRC this year

125 CFOs fined by HMRC this year

International law firm, Pinsent Masons, has reported that this is a 9% increase in fines when compared to previous year

According to a statement by Pinsent Masons, another 125 CFOs and senior finance executives have been fined by HMRC. This is a 9% increase in the last 12 months, with 115 being fined in 2016-17.

The Senior Accounting Regime (SAO) allows HMRC to issue personal fines of around £5,000 to the senior executives of large businesses. Therefore, there is an increased pressure on these senior executives and Chief Financial Officer to properly account for the business income and expenditure for tax purposes.

The law firm claimed that this forms a big part of HMRC’s “increased focus” on making those who hold senior positions personally liable for any errors found in their accounting of business expenditure and income. Back in 2012-13, only 46 people holding this position were fined under the SAO regime by HMRC; this is markedly less than the 125 fined this year.

Pinsent Masons stated: “HMRC is treating claims of self-employed status in some industries with much more scepticism than it may have done in the past. Finance directors can be deemed to be responsible – and fined accordingly – if the tax authority determines that they did not have adequate arrangements in place to prevent de facto employees being treated as contractors.”

Furthermore, HMRC has been criticised by the Tax Tribunal for being markedly more heavy-handed in their approach when imposing these fines. “In one case, the Tribunal criticised HMRC for punishing a CFO long after he had left a business, and no longer had access to evidence with which to defend himself,” the law firm continued. However, HMRC’s increased focus was largely on employment tax compliance – for example, ‘disguised employment’.

The retail sector saw the largest number of SAO regime penalties last year. 26 retail senior executives were fined by the HMRC in 2017-18, which is up from 16 in 2016-17. Pinsent Masons has warned that there is an increased risk of HMRC SAO regime fines for CFOs of businesses that use a large number of contractors, especially those within personal service companies.

Pinsent Masons’ partner, Jason Collins, concluded: “HMRC is showing no sign of letting up on CFOs. Finance directors need to be aware that they are personally in the tax authority’s sights if their businesses make errors in accounting.

“That can be particularly galling if they had no personal knowledge of the errors – HMRC will simply say that it was their responsibility to know.

“Given how complex the tax affairs of £200m+ plus turnover business can be, a CFO cannot reasonably be expected to have personal oversight of every detail. That is why putting in place policies, procedures, and monitoring for tax compliance is absolutely critical.”

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