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Senior Accounting Officer rules

Kamini Patel, Director, Corporate Tax
road and city at night
Falling into the Senior Accounting Officer regime for the first time

The Senior Accounting Officer (SAO) regime forms a key part of any large business’s tax governance and risk management framework.

While an SAO is ultimately a compliance requirement - and penalties may be imposed on both SAOs and companies who fail to comply - it’s also an invaluable tool to drive improvements in key tax processes and systems.

The SAO regime covers a range of taxes and duties, ensuring qualifying companies have adequate systems in place so that the correct tax liabilities are reported to HMRC.

Which companies are affected?

The SAO legislation applies to large UK-registered companies that in the preceding financial year are either alone, or when its results are aggregated with other UK companies in the same group, has:
  • a turnover of £200 million
  • a balance sheet total of more than £2 billion.

Dormant companies in a group, as well as active ones, must comply with these obligations. Limited liability partnerships on the other hand are specifically excluded, as are UK branches of offshore incorporated companies.

While the rules are based on the results of the preceding financial year, it is possible for companies to find themselves within the regime unexpectedly, such as following an acquisition. Businesses close to thresholds, which previously have not been subject to SAO, should also be wary of changes that might push them into the regime - perhaps even caused by inflationary increases in pricing - and therefore something which needs to kept under continuous review.

Who should the SAO be?

Each qualifying company must identify who its SAO is. Where a group of companies is involved, a different person who could act as SAO for each company. A single person could also acts as SAO for all the group companies or several people can act as SAOs for different parts of the group.

It's important to note that the role of an SAO cannot be filled by an agent or be delegated within the company.

Each financial year, a qualifying company must notify the name of its SAO to HMRC. Only one person can be SAO at any one time; however, a company can have more than one filling that position over the course of a financial year. The business will only need to notify HMRC once that financial year has come to an end.

Qualifying companies must notify HMRC of their nominated SAO each year, as this is an annual requirement.

What are the deadlines for filing SAO certificates and notifying HMRC?

1. Notification to HMRC?

The deadline for notifying HMRC of the nominated SAO and submission of the annual certificate is the same as the deadline for filing the company’s accounts for the financial year at Companies House. The relevant time limits are:

  • For a private company: nine months after the end of the relevant accounting reference period.
  • For a public company: six months after the end of that period.

2. Certification to HMRC

The SAO must provide a signed certificate to HMRC and must state either that:

  • the company had appropriate tax accounting arrangements throughout the financial year (unqualified certificate)
  • the company did not have appropriate accounting arrangements throughout the financial year and give detail about the respects in which the arrangements were not appropriate (qualified certificate).

What are the SAO penalties for non-compliance?

There are three potential penalty positions under this legislation. One is assessable on the company, but unusually, two are assessed personally on the individual SAO:

  • the company can be fined £5,000 for failing to notify the name of the SAO within the allowed time
  • the SAO can be fined £5,000:
    • for failing to comply with the main duty of maintaining appropriate tax accounting arrangements and for failing to provide a certificate on time 
    • for providing a certificate that is on time but contains a careless or deliberate inaccuracy.

Each of these penalties is a fixed amount of £5,000, so they are not insignificant. HMRC over the years has raised penalties on individuals and companies for failure. Of equal concern is the potential reputational harm that being subject to a penalty would cause.

You are now in SAO regime - What must the SAO do?

An SAO has personal responsibility for making sure the company takes reasonable steps to establish, maintain and monitor the adequacy of their tax accounting arrangements, ensuring the production of accurate tax returns and for providing a certificate to HMRC after the end of the financial year.

They must also identify any areas that do not meet the requirements and disclose these failures to HMRC as part of a certification process.

The SAO must carry out their duties on an on-going basis as the certificate covers the systems, processes and controls in place throughout the financial year. An issue arising on the first day of the year is as important for SAO purposes as something that happens at the balance sheet date.

Therefore, the amount of work necessary to provide a clean SAO certificate should not be underestimated and cannot simply be prepared at the end of the financial year.

We regularly come across organisations that we expect are paying the correct amount of taxes, but from a governance perspective, they are unable to evidence the processes and controls in place to ensure their taxes are appropriately managed. For example, it is common for one individual to prepare the VAT return and their senior colleague to review it, yet no one has documented the process on how data from the systems is obtained used by the business, the range of adjustments made when preparing the return, the checks completed ensuring the information is accurate, the dates by when the return should be lodged and when the payment was made.

To fully comply with the SAO regime, the processes and controls should be documented.

Taking this example a stage further. It could be that the VAT return includes a subjective judgment on the VAT liability of a major product sold on which the business has taken a view or it could be in discussion with HMRC about the appropriate treatment. We would expect the VAT liability issue to be included on a ‘tax risk register’ that is periodically considered at board level. 

While there is a certain baseline for all organisations, a further point to note is that there must be an approach based on the facts and circumstances of an organisation. For example, an SAO with a decade’s experience working in role is expected to have more complex understand of the processes involved than someone who’s been with an organisation for a year.

We regularly work with organisations to evolve their approach to tax governance over a period of a few years, each year building on the work done in the year before to better document or introduce enhancements to their tax controls.

Final point-interaction with the Business Risk Review

The SAO regime is linked to the Business Risk Review process for large businesses. Companies that are able to sign a ‘clean’ SAO certificate – i.e. there are no issues to report - and can demonstrate to their HMRC customer compliance manager (CCM) the basis upon which that conclusion was reached are more likely to be regarded as representing a reduced risk regarding company’s governance and ability to pay the right tax at the right time. This will result in less management time being spent in dealing with HMRC enquires.

This article was first published on Forbes online in July 2023.

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Robert Marchant
Robert Marchant
Partner, National Head of Tax