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Senior Accounting Officer rules

Lesley Jones, Director, Corporate Tax
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12 years and counting

First introduced in 2009, the Senior Accounting Officer (SAO) rules have now been with us for well over a decade. However, they remain one of the less well-known areas of the increasing toolkit HMRC have to ensure good tax governance.

Set against a background of stretched resources at HMRC, requiring an individual to certify whether a company has appropriate tax accounting arrangements and to disclose shortcomings, could be seen as a wise outsourcing of a tax risk assessment by HMRC.

Who is affected by the requirements?

The SAO legislation applies to UK incorporated companies whose turnover and balance sheet amounts, either individually or aggregated with other UK incorporated companies in the same group, exceeds £200 million turnover and/or a relevant balance sheet total of more than £2 billion for the preceding financial year.

What is required?

The company/group must appoint an individual as SAO, who must make an annual return confirming that there are appropriate tax accounting arrangements in place in their organisation. Where that is not the case, they must make HMRC aware of any shortcomings they believe they have identified. Both the notification of the SAO and their annual return, must be sent to HMRC by the normal accounts filing date for the financial year. A single certificate can cover a number of companies as long as they are identified.

The cost of 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 for failing to notify the name of the SAO within the allowed time, whereas
  • the SAO can be fined for failing to comply with the main duty of maintaining appropriate tax accounting arrangements and also for either failing to provide a certificate on time, or 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.

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 following an acquisition, so it is something to always keep under review.

Has this been a revenue raiser for HMRC?

This is hard to assess. It took until 2017 for news of the first court case and HMRC were defeated in respect of penalties raised against an individual SAO.

HMRC publish annual statistics on the tax gap, which is the difference between the amount of tax HMRC believe should in theory be paid to them and the amount that is actually paid. It is interesting to see in the latest statistics published in September 2021, that while the overall corporation tax gap for 2019-2020 is estimated at 7.6%, the figure for large businesses is estimated at only 2.6%, consistent with the prior year. For mid-sized businesses the gap is estimated at 8.9%, slightly up from 8.5% the prior year. These two categories are most likely to fall within SAO.

The tax gap and tax risk for smaller businesses is significantly higher. While the trends are down across all size categories, there are more marked decreases for large and medium sized businesses, although of course the SAO rules are only part of the picture.

What might the future bring?

The Chancellor announced in the 2020 Budget that government was looking to raise an additional £4.4 billion in the following four to five years through additional tax compliance activity, so the expansion of the SAO regime by the lowering of the limits to cover smaller, perceived higher tax risk, businesses might well be an area for future focus.

Such an adjustment to the limits to bring more businesses into scope of the SAO regime would have a corresponding administrative and financial burden for smaller businesses.

How Crowe can help

Our team have been working with a number of clients to help their SAO’s ensure their reporting processes are up to date and compliant, to help them embed a good governance system. For more information about how we can help you succeed in your role as SAO, please contact Simon Crookston or your usual Crowe contact.

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Jane Mackay
Jane Mackay
National Head of Tax
Thames Valley