A pitfall of having a turnover greater than £200 million
Companies with a UK total turnover of 200 million or more, based on the preceding financial year, must appoint a senior accounting officer (SAO).
The SAO is a director or officer of the company, who in the company’s reasonable opinion, has overall responsibility for the companies financial accounting arrangements.
The SAO’s duty is to take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements. This means the framework of responsibility, policies, personnel and procedures in place for managing tax compliance risk, and the systems and processes that put this framework into practice. The tax accounting arrangements must allow for the tax liabilities of the company to be calculated correctly in all material respects.
The SAO should monitor’s the arrangements and identify any respects in which they fall short of the requirement. They must certify in writing to HMRC that the companies tax accounting arrangements were appropriate throughout the relevant financial year or, if they were not, set out why the SAO could not provide non-qualified certificate.
The SAO's obligations apply in respect of corporation tax, VAT, PAYE, insurance premium tax, stamp duty land tax, stamp duty reserve tax, petroleum revenue tax, customs duties, excise duties including a passenger duty and bank levy. They do not apply to National Insurance contributions or diverted profits tax.
Failure to notify the name of one's SAO, within the required timescale, will lead to a penalty on the company. A personal liability arises if the SAO fails to meet their duty, fails to give HMRC a certificate within the required timescale, or they provide a timely certificate that contains a careless or deliberate inaccuracy. The penalties are fixed at £5000.
The rules were first introduced in 2009 and HMRC gave them a light touch. However, in 2015/16 there was a 70% increase in the penalties issued with the number going up to 181 penalties. Clearly there is a potential risk to an SAO if they are non-compliant and do not take their role of responsibility seriously.
They need to have systems in place to ensure tax compliance is robust and can stand up to challenge by HMRC. There needs to be adequate controls to ensure the scope of error in tax accounting is mitigated.
The SAO must be familiar with all the systems and processes they have in place. There needs to be monitoring of those systems to evidence that the potential for mistakes has been minimised. Changes in staff personnel and legislation merely heighten that risk.
Given the enormous breadth of technical knowledge an SAO would require it's very challenging for them to be able to say annually that they are compliant. The testing of the systems and its output will clearly be a major area of concern which they may rely on internal audit for some form of assurance. Others may not have sufficient capability ,in all areas of taxation, to undertake an internal assessment and may require the support of the auditors or maybe another firm that is independent with requisite skills.
The Board of directors, when looking at the risk profile of their business, must give consideration to the inherent risks of leaving the responsibility solely on the shoulders of their SAO as it is very hard to assess one’s own performance!