It has been 12 years since the Senior Accounting Officer (SAO) regime was introduced, with the aim of forcing large groups to ensure that their controls and processes are appropriate and that tax returns are accurate and free of errors.
Originally viewed as an additional compliance requirement, the SAO regime is increasingly considered a key element in a business’ tax controls and governance frameworks, and the compliance requirements can be used as a method to drive continuous improvement in this area.
A summary of the SAO rules
The SAO regime applies broadly to all companies with turnover exceeding £200m or a balance sheet total of more than £2bn in the previous financial year. It applies to most significant taxes for businesses, including Corporation Tax, VAT, payroll taxes, Stamp Taxes and customs and excise duties. If impacted, a company must notify HM Revenue & Customs (HMRC) each year and file the certificate within six months of the end of the financial year for publicly listed companies, and nine months after the end of the financial year for other companies.
The SAO must certify that the company has appropriate tax accounting arrangements during the financial year (an unqualified certificate), or, if this is not the case, state that the company did not have appropriate tax accounting arrangements in place (a qualified certificate) and provide an explanation for the deficiencies.
If the company fails to notify HMRC of the name of the SAO by the deadline, it may be charged a penalty of £5,000. In the event that the SAO files an incorrect certificate (or fails to provide a certificate at all) or fails to take reasonable steps to ensure that the company adopts and maintains appropriate tax accounting arrangements, the SAO may be charged a penalty of £5,000 personally.
What is HMRC’s approach?
Following an initial period of uncertainty over how to enforce and use the SAO regime to their benefit, HMRC are increasingly using the SAO regime as a tool to actively enforce standards of tax governance.
Combined with a number of other tools, such as Country-by-Country Reporting and the Business Risk Review + processes, HMRC are developing a much more detailed understanding of taxpayers’ compliance environments. They are therefore now able to target risk-based enquiries much more accurately to combat tax avoidance, evasion, and reporting errors. This trend is likely to continue with the future introduction of Making Tax Digital for Corporation Tax, as well as recent consultations on reporting of uncertain tax positions and filing of transfer pricing documentation and record keeping requirements.
Following the Covid-19 pandemic and the resulting strain on the UK Government’s finances, it is highly likely that HMRC will use their range of powers to full effect to both ensure that taxpayers comply with their obligations and to combat tax avoidance. SAO will continue to be a key element in this process, and so taxpayers need to be aware of their obligations.
What are the challenges for taxpayers?
Tax procedures and controls for tax can be challenging for taxpayers to effectively implement given the wide number of taxes within the scope of the SAO regime and the number of non-tax department staff involved in certain processes. Common patterns in businesses with controls deficiencies include the following:
- Rapidly growing businesses where the controls environment has not kept pace with the commercial growth, or heavily decentralised businesses
- Those with a reliance on non-tax specialists and staff turnover
- Those with a significant number of manual processes around data input and reporting, and
- Those with a lack of focus on the controls environment due to insufficient resources.
All of the above can lead to systematic weaknesses in controls, through inadequately trained staff, inherent weaknesses in controls or a lack of regular review and testing of controls.
What action should taxpayers take?
Along with other regimes such as the Corporate Criminal Offences legislation, HMRC have been clear that businesses must take these rules seriously, and simply paying lip-service to them is not sufficient. HMRC use SAO as an input in the Business Risk Review + process, and failure to comply is likely to lead to penalties for the SAO, as well as a negative impact on HMRC’s assessment of tax risk for the taxpayer, with the likelihood of more regular tax enquiries in the future.
As a first step, if they have not done so already, taxpayers should spend time reviewing all processes in the business that impact the numbers reported in tax returns, and in doing so, should consider the potential for errors arising as a result of those processes. Following this, an assessment of the adequacy of the existing controls can be performed, and if necessary improved upon.
How can we help?
At Blick Rothenberg we are experienced in all matters relating to tax compliance, and routinely assist businesses with their obligations. We have a number of specialists who can work with clients to assess risk and weaknesses in processes and controls and provide recommendations for improvement. Our services in this area can include:
- Conducting initial risk assessments
- Training of staff
- Reviewing the effectiveness of internal controls
- Recommending improvements or additional controls for implementation
- Ongoing support, including subsequent risk assessments
If you would like to learn more or discuss how this could potentially impact your business, please contact a member of our team whose details are listed on this page.