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Number of personal penalties issued to corporate accounting officers doubles in a year


The number of individuals issued with personal fines for tax accounting failures by the company that they work for more than doubled in the year to April 2015, according to figures obtained from HM Revenue and Customs (HMRC).

Tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, said that the dramatic increase in the number of penalties issued by HMRC under the Senior Accounting Officer (SAO) regime was in line with the post-financial crisis tendency by regulators to hold individual senior executives to account for any wrongdoing or non-compliance within an organisation.

Introduced in 2009, the SAO regime requires large companies to appoint an individual director or officer who becomes personally accountable for that company's tax accounting arrangements. The SAO, who is usually the company's chief financial officer (CFO) or similarly senior executive, can be personally fined £5,000 for failing to maintain appropriate tax accounting arrangements or to disclose any issues identified to HMRC.

HMRC issued 155 of these fines in 2014/15, up by 112% from the 73 it issued in 2013/14, according to figures obtained by Pinsent Masons.  Around 2,000 UK businesses, which either have a turnover of more than £200 million or a balance sheet total of more than £2 billion for the preceding financial year, are subject to the regime.

"The number of penalties issued is surprisingly high and indicative of a hard-line approach by the Revenue," said tax expert Jason Collins. "HMRC is clearly not afraid to hold individuals at some of the UK's largest companies personally liable for not complying with the rules."

"SAOs need to ensure that they take the process seriously and fully understand the requirements set out by HMRC. The policies, procedures and systems in place to ensure tax compliance need to be as robust as possible – the Revenue is quite clearly not afraid to place them under the microscope," he said.

HMRC can issue two types of personal penalty under the regime: firstly, for failing to take steps to ensure the accounting arrangements are adequate; and secondly, for failing to provide an annual certificate either confirming the arrangements are adequate or disclosing details of the deficiencies. The total number of penalties also includes those issued to businesses for failing to provide the name of their SAO. Accounting arrangements are considered 'adequate' if they enable all relevant tax liabilities to be calculated accurately in all material respects.

The SAO regime was originally enforced in a 'light touch' way, with no penalties issued at all by HMRC during the first three years that the rules were in force. The total number of annual penalties issued has risen sharply since 2012/13, when 46 penalties were issued, according to the figures.

Tax expert Jason Collins said that the potential for error in tax accounting was "huge" without "adequate controls" in place.

"All processes need to be supported by appropriate planning, risk assessment, training and testing, to help minimise the potential for mistakes," he said. "Given the scale of the money flows in these businesses, one weak link in the reporting system could result in a large under-declaration of liability."

From next year, large businesses and large partnerships will be required to publish their tax 'strategy' online and update this annually. However, the government announced this month that it had dropped plans to give a named individual accountability for the published strategy, and would instead assign responsibility to the board as a whole.

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