HMRC senior accounting officer personal penalties continue

Another 125 penalties were issued by HMRC under its senior accounting officer (SAO) regime in the year ending 31 March 2018, up from 115 a year earlier. Just five years ago, only 46 penalties were issued by HMRC under the regime, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com.

"HMRC is showing no sign of letting up on CFOs," said tax expert Jason Collins of Pinsent Masons.

"Finance directors need to be aware that they are personally in the tax authority's sights if their businesses make errors in accounting. That can be particularly galling if they had no personal knowledge of the errors - HMRC will simply say that it was their responsibility to know," he said.

"Given how complex the tax affairs of a high turnover business can be, a CFO cannot reasonably be expected to have personal oversight of every detail. That's why putting in place policies, procedures and monitoring for tax compliance is absolutely critical," he said.

The SAO regime was introduced in 2009. It requires large companies, defined as those with either £200 million in turnover or a total balance sheet of £2 billion, to appoint an individual director or officer as personally accountable for that company's tax accounting arrangements. The SAO, who is usually the company's chief financial officer (CFO) or similarly senior executive, can be personally fined £5,000 for failing to maintain adequate tax accounting arrangements, or failing to disclose any issues identified to HMRC.

There are two types of personal penalty that can be issued under the SAO regime: firstly, for failing to take steps to ensure the company's accounting arrangements are adequate; and secondly, for failing to provide an annual certificate either confirming the arrangements are adequate or disclosing details of the deficiencies. Accounting arrangements are considered 'adequate' if they enable all relevant tax liabilities to be calculated accurately in all material respects. Businesses can also be fined under the regime for failing to provide the name of their SAO to HMRC.

HMRC has been criticised by the tax tribunal for its heavy-handed approach to imposing penalties under the SAO regime. The tax tribunal has even overturned SAO fines imposed by HMRC including, in one case, a fine imposed on a CFO long after he had left the business and no longer had access to evidence with which to defend himself.

According to Collins, the increased number of fines is likely to have been driven by HMRC's increased focus on employment tax compliance, particularly in relation to what it deems 'disguised employment'. HMRC is treating claims of self-employed status in some industries with much more scepticism than it may have done in the past, and finance directors may be deemed to have been responsible if it determines that the company did not have adequate arrangements in place to prevent 'de facto' employees being treated as contractors, he said.

HMRC's increased focus on this area could lead to more SAO penalties for SFOs that use a large number of contractors, especially through personal service companies, in the coming years, Collins said.