SAO enforcement six years on

December 15, 2015
hpride

Laurence Kiddle on why a light touch has given way to a heavier hand

The introduction of the Senior Accounting Officer (SAO) regime in 2009 caused ripples in the finance profession, as for the first time they explicitly tied tax compliance with personal liability. This was somewhat mitigated by HMRC’s stated ‘light touch’ approach to enforcement. Its introduction was seen as an attempt to improve compliance in large companies.

The rules specified that a SAO, once identified, has to take “reasonable steps” to ensure that the company has robust and “appropriate” tax accounting processes – and to attest that these have been followed. While the penalty for non-compliance – a fine of £5,000 on the individual – may be regarded as relatively immaterial, reputational damage could be significant.

Six years on, it seems that the light touch promised for the first two to three years is well and truly over and the ripples SAO originally caused are becoming much larger waves. From a compliance perspective, the long hand of SAO presents some unique challenges and, for the individual, it may prove to be a costly business.

A recent round table debate highlighted this when attendees shared anecdotes indicating that a more rigorous approach was underway. For example, a relatively minor transgression (mistakenly missing a company off a register) was voluntarily disclosed to HMRC. Whereas similar issues had previously been dealt with informally, on this occasion it triggered an immediate penalty discussion.

The wider point made was that it was, for most large companies and given the complexity of tax law and practice it is virtually impossible to be 100% compliant in every area; so that robust processes and sign-off procedures are invaluable in demonstrating that the elusive concepts of ‘reasonableness’ and ‘appropriateness’ are being met. These very often involve the use of technology to embed tax policy into a process, and to maintain the rigorous audit trails and sign-off evidence – as well as specialist compliance technology to ensure that the data collection and tax calculations are accurate, efficient and timely.

Only at the end of last month, HMRC published a consultation document on ‘Improving Large Business Tax Compliance.’ Here again, there are indications of stronger enforcement.

The consultation proposes the SAO turnover and balance sheet thresholds should be used in identifying companies that will be party to the additional requirements, and that ‘sanctions could be modelled along the lines of the current HMRC SAO regime’. Can this mean that a failure to comply will fall, once again, on the shoulders of the named SAO?

Given that the initial ‘light touch’ of HMRC’s application of the rules has now ended and there is a potential for more of the same, it seems that SAOs and their boards will need to take extra care to ensure they are adequately protected and effective controls are maintained to minimise the exposure to penalty.


Contact

Hayley Pride
PR Coordinator
Tax & Accounting, APAC & EMEA
Thomson Reuters
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Direct Dial: +44 (0)20 75427185
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hayley.pride@thomsonreuters.com

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