The Senior Accounting Officer (SAO) regime is overseen by HMRC and applies to all ‘large companies’. This includes UK incorporated companies with a turnover in excess of £200 million in the preceding financial year and/or a balance sheet total of more than £2 billion.

The limits have not changed since the SAO rules were introduced 10 years ago. With the shift in focus to the management of tax risk, it is likely the threshold limits will be reduced in due course to bring more organisations into the net.

The SAO of the organisation has to certify that the company, and each of its subsidiaries, establishes and maintains 'appropriate tax accounting arrangements'. In practice, this focuses on 'how' the business manages its tax obligations and in particular, the process and controls in place to ensure that the right amount of tax is paid, at the right at the time.

The SAO can be personally liable for incorrect or incomplete declarations and we have started to see HMRC taking action against individuals with a recent dispute having been heard by the tax tribunal.

Other organisations

With the increased focus on tax governance and the integrity of data, some organisations who are not within the regime are starting to adopt an SAO best practice governance approach.

How we can help

Our team advises businesses on how they can embed a good governance approach.

• Senior Accounting Officer process and controls reviews
• Assistance with VAT and Customs Duty
• Supply chain reviews
• Corporate tax advice
• Employment taxes reviews
• Global mobility assurance
• Ongoing monitoring and risk register advice
• Risk and assurance
• Internal audit

Many large and owner managed businesses are increasing their focus on good tax governance and management of tax risk, ensuring robust processes and controls are in place; the emphasis being on ‘how’ tax compliance is dealt with and making sure the right amount of tax is paid at the right time.

The COVID-19 pandemic and Brexit has further speeded up this process, as finance teams have been forced to proactively revisit whether their compliance systems and processes are fit for purpose and robustness.

We have also seen a recent shift in HMRC’s approach, as they have sought to draw on huge amounts of data from numerous sources, including information from: tax records, the internet, banks, government departments and other organisations to build up a complex ‘tax picture’ on organisations and individuals. With such a rich source of data HMRC have the ability to evaluate and determine if there are inconsistencies in the tax information which is declared as part of return filings.

Those businesses that have received HMRC enquiries over the last couple of years which lead to adjustments, enter into tax planning schemes, or take a more aggressive approach to minimising their tax are generally considered to be of higher risk from a tax authority perspective.

Many clients are now seeing a tax risk health check as a sensible approach to take stock of their current position and to provide a platform from which they can start to proactively managing their ongoing tax affairs.

What should businesses do?

As all businesses are different and dynamic unfortunately there is not a ‘one size fits all’ approach to managing tax risk and the development of robust processes and controls. However, from our experience, here are few example areas for consideration to ensure your processes and controls are robust:

• Do you have a process in place to identify changes in the tax regime that are relevant to your business?  For example, have you identified all the tax changes that are required as a result of Brexit?
• How robust are your accounting and tax processes and procedures and where are the risk areas if the finance team is operating from home or remotely? Is remote working increasing your organisation’s vulnerability to cybercrime or increasing the risk of the creation of an overseas taxable presence?
• What training are the staff involved with taxes given? How often is their knowledge refreshed / kept up to date?
• Who has review and sign-off responsibilities for tax returns to ensure that the numbers submitted are accurate and that any payment due is made on time?
• What links are in place with the commercial teams that develop new products or win new business to ensure that new sources of revenue are treated correctly for tax purposes?
• New overseas activities can commonly lead to unexpected tax consequences. What processes are in place to consider the corporate tax, VAT, duty and employment tax implications of undertaking activities abroad? This review should ideally be undertaken before the activities commence.

How we can help

Our multi-disciplinary team of tax specialists can help assess your tax compliance procedures, tax risk and governance position. Providing you with a roadmap of where you are now and what actions are required to improve your compliance and tax risk management procedures.

Our tailored approach is flexed to individual client circumstances, although the key elements of our tried and tested approach typically include:

• An initial evaluation assessment - through a workshop or online meetings with the appropriate stakeholders.
• In-depth review and testing - of the identified compliance processes and tax risk areas.
• Risk assessment - categorising our findings into high, medium and low risk.
• Findings report - highlighting our key findings, recommendations and comments for improvement.

Case studies

Audio Visual manufacturing and servicing group

How we helped

We were asked to undertake a tax health check review of the affairs of this new client. Our review identified large errors in a number of their taxes, including: VAT, corporation tax and P11D's. We assisted the client revisit their previous tax filings, identify the tax exposure in each of the areas and make a voluntary disclosure to HMRC.

Benefit of our approach

The business was able to proactively become compliant, bring its tax affairs up to date and change its systems and processes to ensure compliance going forward. This provided comfort to the stakeholders of the business that their tax risk was appropriately being managed and reduced their exposure to penalties and fines from HMRC.

Transport business

How we helped

As a consequence of staff changes the business had identified they may have a problem with the way they were treating their drivers from a tax perspective. We were asked to undertake a tax health check review to ascertain the historic position, identify the potential tax risks and to assist the business implement more robust systems to identify and deal with self-employed / agency drivers.

Benefit of our approach

The business was able to identify and quantify the tax risks and remedy the situation proactively and appropriately with HMRC. We conducted an IR35 review of their existing agency drivers and helped the finance team understand the requirements for when they needed to clarify the position for future workers. This provided the shareholders with comfort that their employment tax obligations were in order.

The Corporate Criminal Offences Act of failing to prevent the facilitation of tax evasion came into force on 30 September 2017.

What should businesses do?

The provisions allow for the criminalising of corporate entities (including partnerships and LLPs) that do not do enough to prevent the facilitation of that evasion by the entity’s employees, contractors and agents.

To defend themselves from a potential liability organisations must be able to show they have reasonable procedures in place to prevent the facilitation of tax evasion. 

HMRC are now actively seeking to enforce the legislation. As at 31 July 2020, HMRC had 31 investigations under review across 10 different business sectors including financial services, oil and gas, construction, labour provision and software development. This is in addition to the 33 reviews already undertaken. The reviews cover the full spectrum of businesses from small business through to some of the UK’s largest organisations.

The number and spread of investigations clearly demonstrate that HMRC is actively enforcing the legislation across all tax and duty regimes and their focus covers organisations of all shapes and sizes.

How we can help

Our role can vary according to the requirement of the individual organisation.

Our multi-disciplinary specialist team from tax and forensic accounting advise clients on how they can ensure compliance with HMRC’s requirements.

A key element of our approach is being able to demonstrate to HMRC that a firm has actively sought to put reasonable prevention procedures in place. These include:

• an initial assessment to determine the risk of tax evasion and its facilitation
• understanding what mitigating measures are already in place
• recommendations to address gaps that are identified.

There are requirements for certain large UK organisations, those with £200 million of turnover and / or balance sheet assets of greater than £2 billion in the previous year, to publish a UK tax strategy on their website.

For most organisations this takes the form of a set of guiding principles that is approved by the board and which demonstrates the business’ approach to tax risk and governance. This includes:

• the organisation’s approach to risk management and governance
• the group’s attitude towards tax planning
• the level of UK tax risk the business is prepared to accept
• the organisations approach to its dealings with HMRC
• any other relevant information relating to taxation.

HMRC can impose financial penalties on organisations that fail to comply with the requirements to publish their tax strategy on their website.

How we can help

Our team can help advise your business on development of their tax strategy, ensuring that your strategy:

• aligns to the organisation’s wider values
• is fact based and that all statements are supportable
• is easy to understand and media friendly.

Update: UK moves from DAC 6 to OECD Mandatory Disclosure Rules (MDR) - read our insight 

The EU directive known as DAC 6 has a similar aim to the UK’s existing Disclosure of Tax Avoidance Schemes (DOTAS) regime, but will catch cross-border transactions including many which have real commercial substance and no tax avoidance motive.

The directive is designed to tackle tax avoidance and promote tax transparency by introducing an obligation on intermediaries to disclose cross-border tax arrangements. This will allow different tax authorities to exchange information on potentially aggressive tax structures. The UK will sign up to DAC despite our withdrawal from the EU. Consequently, cross-border arrangements involving at least one EU Member State or the UK will need to be reported if they meet one of the ‘hallmarks’. From a UK perspective, DAC 6 covers all EU taxes other than VAT, customs duties, excise duties and mandatory social security contributions.

Due to COVID-19 the European Commission has announced a proposed extension to the original timetable. The implementation of the extension means:

• historical reporting covering arrangements in the period from 25 June 2018 to 30 June 2020 will be postponed from 31 August to 28 February 2021
• the reporting obligations arising in the second half of 2020 are now deferred to 1 January 2021. Such reports are required within 30 days of that date
• information will not be exchanged between Member States until 30 April 2021.

Who is affected?

DAC 6 applies to any person (including an individual, partnership, company or other legal entity) operating in the EU or with interests in the EU. It applies to multinational companies, but equally could apply to intermediaries such as law firms, accountants, banks and financial advisors.

How we can help

HMRC have recently updated their guidance on DAC6, although there is still some uncertainty on about how DAC will apply in practice. In the meantime, our team can advise your business on:

• how to set up a system to collate data for the transitional period so that information is available to report if needed.
• whether the cross-border arrangement is reportable based on the hallmarks.
• who has the obligation to report – do you need to report?
• what should be reported?

DAC 6 outlines how tackling tax avoidance and evasion is a key part of the UK government’s strategy to ensure that everyone pays their fair share of tax.

Further information can be found on the following links.

Getting ready for DAC: A guide for taxpayers

DAC 6: New EU tax Mandatory Disclosures Rules