It has been nearly six years since the Senior Accounting Officer ("SAO") regime was introduced into the UK, and we are starting to see HMRC crack down on companies' failures to comply with the legislation.


Implemented by Schedule 46 of the Finance Act 2009, the SAO regime requires certain "large" companies (broadly, UK registered companies with an annual turnover exceeding GBP200 million and/or a balance sheet total exceeding GBP2 billion) to have in place appropriate tax accounting arrangements to enable specific taxes to be calculated accurately in all material respects. SAOs of those companies must also report to HMRC on the appropriateness of their tax accounting arrangements in the form of a certificate.

The rationale behind the SAO regime was to ensure the adequacy of accounting systems in large companies and to highlight any significant tax misreporting which, by its nature, would otherwise be difficult for HMRC to discover.

What constitutes appropriate tax accounting arrangements?

The SAO must take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements as part of its ongoing corporate governance. What will be "appropriate" in each case will depend on factors such as the size, complexity and nature of the business in question.

In considering the appropriateness of tax accounting arrangements, the SAO must consider the regularity of each transaction involved, the likelihood of that transaction being accounted for incorrectly and the impact of transactions or groups of transactions being processed incorrectly.

How can companies comply with the rules?

Businesses must check that their processes are compliant and the uncertainty around what will constitute "appropriate" accounting arrangements could prove costly for businesses. Businesses must review their systems, processes and people to ascertain areas of risk and exposure. Areas which are most likely to create tax issues, such as transfer pricing and remuneration schemes, should be prioritised and the personnel and processes monitored appropriately.

Businesses should also actively engage with their HMRC Customer Relationship Manager (CRM) to ascertain whether they have any concerns about any aspect of the company's systems and processes. HMRC's guidance on the SAO regime states that if a business has fully and openly engaged with its CRM and the CRM has not expressed concerns, then this is likely to provide comfort that the SAO's duty is being fulfilled.

In what ways are HMRC cracking down on the regime?

A key motivation for companies to ensure compliance with the SAO regime lies in the penalties which may be imposed for non-compliance. Failure of a qualifying company to notify HMRC of the SAO for the relevant financial year will result in a penalty, which are now being more regularly applied after HMRC's initially "light touch" approach to the regime. A SAO may also be personally penalised if they fail to meet their main duty, do not provide HMRC with the required certificate or provide a certificate with deliberate or careless mistakes. Each of these penalised is a fixed amount of GBP5,000.

DPT and the SAO regime

The introduction of the diverted profits tax ("DPT") earlier this year has been met with uncertainty from companies who are beginning to assess their exposure to the new tax. One piece of good news for SAOs thus far, however, is that it appears that the SAO regime does not currently apply to DPT. The taxes to which the SAO regime applies are set out in paragraph 14 of Schedule 46 of the Finance Act 2009, and include “corporation tax including any amount assessable or chargeable as if it were corporation tax”, plus a list of other taxes. As DPT is not one of the specific taxes on the list and the DPT legislation does not state that it is assessable or chargeable as if it were corporation tax, DPT will fall outside the SAO's area of responsibility - at least for now.