KPMG's Senior Accounting Officer (SAO) team brings you regular insights, updates and opinions on SAO Regulations.
KPMG's Senior Accounting Officer (SAO) team brings you regular insights.
Update on Large Business tax Compliance Consultation
Representatives of the central HMRC team that is responsible for the Consultation Document recently gave a presentation to a number of KPMG clients. The key points to emerge were as follows:
1) In response to representations made already, it is unlikely that HMRC will pursue a number of its original proposals:
These developments are good news. Although, but to strike a note of caution, there were a number of references during the session to elements of the proposals that reflect ministerial decisions and so presumably any changes will also require ministerial approval.
2) A number of concerns were expressed by those present:
HMRC acknowledged that, perhaps not surprisingly, the same concerns had been raised at other, similar sessions.
Views from HMRC's central SAO team
At a recent meeting HMRC’s central SAO team expressed the view that the introduction of the SAO regime has been a success as it is achieving its objective of raising the profile of tax at board level. It was acknowledged that this has been helped by the unprecedented profile of tax governance in the media. The introduction of other initiatives, such as the current consultation on the publication of tax strategies and the introduction of a voluntary Code of Practice, have also helped.
However, it was acknowledged that there remain inconsistencies in the approaches of individual CRMs. There needs to be more focus on the key requirement of the legislation, that SAOs should take reasonable steps to ensure that there are appropriate tax accounting arrangements, rather than the relatively minor administrative issues that have led to the majority of penalties to date. Examples of such administrative issues include; failure to submit certificates for dormant companies and the submission of soft copies rather than the original signed documents. A review is therefore underway to decide upon the extent to which some of these requirements can be relaxed.
The way that HMRC administers the SAO regime may be relaxed, which is clearly welcome. Although it is important to note that this does not signify a return to the ‘light touch’ that was applied in its early years. Instead, SAOs can expect an increased focus on the ‘main duty’ requirement of the legislation. This includes the effectiveness of monitoring activities, with questions from CRMs concerning their primary steps, to ensure that appropriate tax accounting arrangements are in place and to decide the basis upon which the required certificate should be submitted.
Know Your Customer (KYC) Meetings
After a period of relatively limited activity, HM Revenue & Customs is in the process of carrying out Know Your Customer (KYC) meetings with larger employers, many of which will be in the Senior Accounting Officer regime. KYC meetings are an exercise designed to enable HMRC to find out more about the employment tax processes and controls within organisations, together with the employee reward strategies, and continues the risk based approach adopted under the SAO regime. The introduction of these meetings follows HMRC’s agenda to employing several individuals who have previously worked in industry or an accounting practice, in order to “up skill” their compliance officers.
Although on the surface these meetings are designed to enable HMRC to gain further information on their 'customers', we know from our clients' experiences that there is a strong focus on the processes and controls in place, in terms of employment tax compliance. The approach and depth into which the meetings have gone has varied from one client to another, however, we are noticing that for those within the SAO regime, HMRC is asking questions around the validity of SAO processes and the level of internal checks to evidence these.
This again highlights the need for organisations to be able to articulate the governance and control framework within which tax is managed, particularly in areas such as employment taxes, which often involve the interaction of different parts of the business. In view of the prevalence of KYC meetings, it is therefore recommended that reviews are carried out on any areas of uncertainty.
SAO regime and Diverted Profits Tax (‘DPT’)
The Diverted Profits Tax came into effect from 1 April 2015 and the application of the legislation in practice is a developing area. We have received a number of questions from clients as to whether DPT is included within the Senior Accounting Officer (SAO) regime.
The SAO regime requires certain companies to have appropriate tax accounting arrangements to enable specific taxes to be calculated accurately in all material respects. The taxes included within the regime are listed in statute and include “corporation tax including any amount assessable or chargeable as if it were corporation tax”, plus a list of other taxes.
DPT is not specifically on the list and the Finance Act does not amend the list to include it.
This means the SAO regime could only apply if DPT were assessable or chargeable as if it were corporation tax, which it isn’t. The legislation which charges DPT makes no reference to DPT being assessable or chargeable as if it were corporation tax.
Therefore, DPT does not fall within the SAO regime as currently written, meaning that SAO penalties should not be chargeable on DPT failures. That said, from a broader tax risk perspective, companies which could be within the charge to DPT clearly need to ensure they have appropriate arrangements in place to: (i) gather the data needed to decide whether they have any DPT obligations; and (ii) comply with the notification (and any other) time limits if appropriate.
Do amended returns necessarily mean a failure and penalties under the SAO regime?
We are seeing an increased interest by HMRC Customer Relationship Managers (CRMs) in considering Senior Accounting Officer certificates and the underlying sign off procedure.
In particular, this is taking the form of discussions with clients where significant adjustments have arisen in returns, but there was no reference to the underlying controls deficiency in the SAO certificate.
We have seen SAOs being asked what steps they took to satisfy themselves that a particular company had appropriate tax accounting arrangements – after an amendment has been made to an already submitted return.
If the SAO did not take reasonable care to submit an accurate certificate, they may be liable for a £5,000 personal penalty due to “main duty failure”.
The key point to note is that a penalty is not automatic in these scenarios as long as an SAO has taken reasonable steps to ensure appropriate tax accounting arrangements are in place. However, the SAO can reasonably expect to be asked about their certification process and why certain items were not included on those certificates.
The impact of this approach is that it is now more important than ever for an SAO to be able to articulate how they manage tax risk and the steps that feed into the eventual signing of the SAO certificate. We recommend this is supported by a clear trail of supporting contemporaneous documents, that are retained by the SAO. Since HMRC enquiries can relate to accounting periods several years in the past, these documents will be powerful evidence of the steps taken by an SAO and will be invaluable when seeking to demonstrate to HMRC that reasonable care was taken at the time.