LONDON: More than 150 fines were handed out to finance directors of some of Britain’s biggest companies last year as the tax authority clamped down on mistakes.
The number of £5,000 penalties more than doubled over the year in a sign that HM Revenue & Customs has stepped up its enforcement of the 2009 “senior accounting officer” rules that made individual directors take responsibility for the accuracy of their tax accounting.
Jason Collins, head of tax at Pinsent Masons law firm, said: “The number of penalties issued is surprisingly high and indicative of a hardline approach by the Revenue.”
Most of the penalties were for procedural failures, such as late filing of certificates, rather than for weaknesses in accounting arrangements.
But the big increase in fines — from 46 in 2012-13 to 155 in 2014-15 — is a sign that the Revenue is moving away from the “light touch” that marked the first three years of the new rules, when there were no penalties.
The Revenue said the penalties reinforced its drive “to ensure tax is on the boardroom agenda and promote responsible management of tax. We want to make sure tax compliance is given adequate attention by a senior officer of the company”.
Paul Harrison, tax partner of the consultancy KPMG, said that if a high proportion of the fines related to procedural errors, it might be a sign that the Revenue had missed an opportunity to push tax compliance up the agenda.
He said: “Most large businesses do well in difficult circumstances with limited resources.” But the senior accounting officer legislation had been a chance to help large companies “focus on the efficiency and effectiveness of the tax compliance process”.
The number of penalties issued is surprisingly high and indicative of a hardline approach by the Revenue
The legislation was introduced with the aim of increasing the focus on tax in company boardrooms and of ensuring businesses had robust tax accounting systems and governance in place.
It initially sparked alarm among many finance directors, who feared that their career prospects would be jeopardised if they fell foul of the new rules.
The move to make individuals personally responsible for internal controls was inspired by the Sarbanes-Oxley Act introduced by the US in 2002 after several corporate scandals. Both require “sign off” from a senior executive, though the US legislation relates to financial reporting rather than tax.
Under the UK rules, companies are meant to file a certificate every year either confirming that the accounting arrangements are adequate or disclosing details of deficiencies.
Accounting arrangements are considered appropriate if they enable all relevant tax liabilities to be calculated accurately in all material respects.
The Revenue has up to six years after the end of a company’s financial year to assess a penalty. The rise in penalties is likely to reflect the identification of failures covering more than one year.