April’s budget announced the introduction of certain key compliance measures:
1. senior accounting officers will be personally liable for inadequate company tax accounting systems; and
2. the details of those who deliberately understate their tax liability can be made public.
Personal tax accountability for Senior Accounting Officers of large companies
Legislation is to be included in the Finance Bill 2009 which will require senior accounting officers of large companies and groups to:
• take reasonable steps to establish and monitor accounting systems so that they are adequate for tax reporting purposes. Tax reporting in this context being the preparation and submission of returns to HM Revenue & Customs (“HMRC”) and not accounting for tax figures in the financial statements;
• certify annually that these systems are adequate or alternatively specify to HMRC inadequacies and additionally confirm that they are notified to the company auditors; and
• to notify HMRC of the identity of the senior accounting officer.
These new and, for the UK tax system, revolutionary requirements will be backed up by new penalty provisions providing for penalties of up to £5,000 chargeable personally to the senior accounting officer for careless or deliberate failure to comply with these obligations. Similarly there will be penalties imposed on companies for careless or deliberate failure to comply with the notification obligation.
The new obligations will apply to accounting periods beginning on or after the date at which the Finance Bill 2009 receives Royal Assent.
Large companies and groups should have systems and controls in place in respect of submitted computations, though it would be prudent to carry out a review of finance as well as tax systems and processes to ensure that it is prepared once the legislation takes effect.
Naming of Deliberate Tax Defaulters
The Finance Bill 2009 will also allow HMRC to publish the name and details of individuals, businesses and companies who are deemed “deliberate tax defaulters”, specifically: (i) those who are penalised for deliberately understating tax due, or overstating claims or losses, of more than £25,000; (ii) deliberately failing to notify HMRC when required to do so; or (iii) deliberately committing certain VAT and excise wrongdoings, leading to a loss of tax of more than £25,000. The new legislation will not apply to deliberate defaults committed prior to the legislation becoming effective; and going forward, those who make an unprompted disclosure or a full prompted disclosure within the required timeframe in respect of a deliberate tax default will not be affected.
The publication of details of corporations in the event of a tax default could result in damage to the perception of a business in the eyes of customers and suppliers. In addition, new reporting requirements for those individuals and companies who have incurred a penalty for the deliberate understatement of tax to the value of at least £5,000 will be introduced, requiring them to provide additional information on their tax affairs going back up to 5 years to ensure that they have proper systems to be able to make correct returns and allow HMRC to monitor their compliance.
• Perform an audit of the company’s finance and tax systems and processes.
• Consider introducing indemnities to cover any fines incurred by companies and/or their senior accounting officers together with professional fees incurred in defending any action by HMRC as a result of the Finance Bill 2009.