You really do not want to be one of these. HMRC have now published guidance about the new rules to be introduced this year to make senior accounting officers of large companies responsible for ensuring (and certifying) that appropriate tax accounting arrangements have been established and maintained. Get it wrong, and there is a whacking fine both on the company and on the senior accounting officer.
Fortunately this only applies to the largest companies or groups, those with a turnover of more than £200million or gross assets of more than £2billion. One might say that they should be big enough to look after themselves but even so, the man responsible is personally in the firing line.
Interestingly, these rules only apply to UK registered companies. Non-resident companies that operate in the UK through a permanent establishment or companies which are only resident in the UK by virtue of their central management in control being exercised here are outside the scope of these provisions. Why this should be the case is unclear. If they want to ensure that companies liable to UK corporation tax have systems to ensure they pay the right tax, what on Earth does it matter where they were incorporated? What matters is where they are resident.
HMRC say that the purpose of this legislation is not to raise the tax yield by the assessment of penalties. Perish the thought. It is merely intended “to encourage companies to have an open dialogue” with HMRC.
HMRC make the perfectly reasonable point that there are some large companies which do not have robust systems and processes and find it difficult to know whether or not the right tax is being paid. But HMRC has always had the most powerful of remedies – which is the ability to assess the tax and to put the onus on the taxpayer to prove that the assessment is wrong. If the company systems are not good enough to be able to say whether the right tax is being paid, they will not be able to displace the assessment and will end up paying a lot more tax than they should. Whether this is fair or otherwise is not the issue – that is the system and it is an extremely potent weapon.
As far as I can see, a senior accounting officer (SAO) is in the most dreadful jeopardy here. He or she must certify that throughout the company’s financial year reasonable steps were taken to ensure that the company established and maintained appropriate tax accounting arrangements.
The vagueness of these terms may sound like a blessing to the individual, but it also provides serious wriggle room for HMRC. Furthermore, HMRC say that those involved must ensure that decisions are based on a reasonable interpretation of accurate information in full knowledge of tax law and having taken appropriate advice.
The SAO can protect himself or herself by highlighting areas where the appropriate tax accounting arrangements were defective – but that is unlikely to be a popular move as it would inevitably prompt an immediate tax enquiry by HMRC.
HMRC acknowledge that following a merger or acquisition it is likely that the SAO will be uncertain about the extent to which the new companies’ tax accounting arrangements are appropriate. They expect the SAO to identify any shortcomings and for those shortcomings to be highlighted in the certificate. What will happen then, I wonder.
It will be interesting to see how this all plays out. I imagine there is going to be some litigation here because the accounting systems of such companies are bound to be excellent and any dispute will inevitably focus on whether the judgments made by the SAO are unreasonable. Who is going to admit to that without a fight? If you do, it would open the door to an investigation. I guess that the most obvious way out is to ensure that the auditors are instructed to confirm everything is OK so that the company and the SAO are protected.