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Corporate finance directors in HMRC 'firing line' as individual penalties remain high, says expert

The number of personal penalties levied by HM Revenue and Customs (HMRC) against corporate senior accounting officers (SAOs) remained high last year, according to figures obtained by Pinsent Masons, the law firm behind Nov 2017

SAO fines have risen by 150% over the last five years, with 115 penalties issued under the regime in 2016/17. The number of individuals fined was highest in the financial services and retail sectors, with 16 individual penalties issued in each; while the biggest increase was in the energy sector, where 14 fines were issued compared to nine the previous year.

The figures showed that HMRC was taking an aggressive approach to enforcement, said Pinsent Masons tax expert Jason Collins.

"Putting finance directors in the firing line is a definite escalation of HMRC's tactics," he said.

"Given the scale and complexity of the money flows in large businesses, simple errors in the finance department can result in mis-reporting and subsequent fines. Finance directors need to understand all the requirements set out by HMRC. The policies, procedures and systems in place to ensure tax compliance need to be carefully monitored to avoid the potential for mistakes," he said.

The SAO regime was introduced in 2009. It requires large companies to appoint an individual director or officer as 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 adequate tax accounting arrangements or to disclose any issues identified to HMRC.

There are two types of personal penalty that can be issued 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 arrangement are adequate or disclosing details of the deficiencies. Accounting arrangements are considered 'adequate' if they enable all relevant tax liabilities to be calculated accurately in all material respects. Businesses can also be fined under the regime for failing to provide the name of their SAO to HMRC.

The total number of penalties issued under the SAO regime last year was actually lower than the number issued in each of the previous years. There were 181 SAO penalties issued in 2015/16, and 151 in 2014/15, according to Pinsent Masons figures. In August, a first-tier tribunal overturned two SAO penalties, which HMRC had imposed on the finance director of a privately-owned group of companies that had not adhered to its requirements.