HMRC's response to SAO guidance consultation increases risk of main duty failure
HMRC has now released its response to the updated SAO guidance consultation. While the response implies that the updated guidance will generally be in line with the draft released for consultation, there have been a few changes that increase the risk of HMRC challenging companies on their compliance with the main duty.
HMRC has taken a firm approach on the issue of "hybrid" certificates (which state that tax accounting arrangements were appropriate except in certain circumstances), emphasising that they will not be considered acceptable under the updated guidance.
HMRC will remove the phrase "to the best of my knowledge and belief" from the certificate wording contained in the guidance, and has asked that SAOs of groups file separate certificates for those companies with qualifications and those without.
The renewed focus on a legal entity basis, together with no "hybrid" certificates and the removal of the phrase "to the best of my knowledge and belief" will increase the risk of HMRC challenging SAOs on their compliance with the main duty, and will place greater emphasis on businesses to determine what "in all material respects" means for their companies.
The updated guidance will apply from the date it is published, which HMRC expects to be "later in the spring/summer". If you are due to submit your SAO certificate in the next few months please be aware of the updated guidance so that you can give consideration to the impact of the changes on your SAO certification in anticipation of its release.
If you would like to receive a copy of HMRC's full response to the consultation or the draft updated guidance sections please email us.
HMRC Revised Guidance and Materiality Workshop
Representations around the proposed new guidance have now been submitted and HMRC has indicated they will aim to provide a response to issues raised by the end of March. They have confirmed that until the revised guidance is issued companies and SAOs may follow the existing guidance for the wording of their certificates.
If you would like a copy of the representations made by KPMG in the UK please email us.
With the proposed changes placing an increased focus on the concept of materiality for SAO, if you would be interested in attending an informal working session with your peers to discuss this important area on Tuesday 19 March 2013 at our Salisbury Square office please email us.
Revised SAO guidance opened to consultation
HMRC has released its proposed changes to the Senior Accounting Officer (SAO) guidance for consultation.
As expected, the changes are intended to give greater clarity over some of the areas of uncertainty, in particular:
- Reinforcing HMRC’s interpretation of the rules that SAOs must certify that tax accounting arrangements are either appropriate or not appropriate, with no middle ground (SAOG15200, SAOG15300, SAOG15400)
- Clarifying HMRC’s expectations of a person who becomes SAO during a financial year, or after a financial year but before the deadline for filing the certificate (SAOG15200)
- The level of detail which should be disclosed on a certificate, including HMRC’s expectation to see the root cause of the issue identified (SAOG15400)
These changes are likely to have a significant impact on how you approach your SAO compliance, with an increased focus on determining those tax accounting arrangements which are “material”.
HMRC has requested comments by 6th March. In light of this we will be hosting two sessions of our interactive SAO Forum:
- 14th February 9-10am – To discuss what these changes will mean in practice
- 26th February 9-10am – To collate and discuss the comments you would like us to take back to HMRC
Invitations for the 14th February Forum will go out to all subscribers to the SAO Tax Diary and previous attendees of the SAO Forum shortly. If you are interested in joining the Forum and have not received an invitation by Tuesday 12th February, please email firstname.lastname@example.org. Please also email email@example.com if you would like to request a copy of the consultation document.
HMRC’s central policy team recently shared with us two of the key areas of change in its proposed updated SAO Guidance. They confirmed that the changes would not seek to alter the existing rules, but aim to give greater clarity over some of the areas of uncertainty. Specifically, the two areas they mentioned were (i) the wording for qualified certificates and (ii) the need to understand the root cause of an issue.
Wording for qualified certificates
HMRC is concerned that qualified certificates are not written in line with the SAO Guidance (SAOG15200 and SAOG15400) which requires SAOs to state that “the company/ companies did not have appropriate tax accounting arrangements” when submitting a qualified certificate. Understandably a number of SAOs have preferred to word their certificate to the effect that the tax accounting arrangements were appropriate with the exception of certain identified areas. This is especially the case where the qualification(s) have been relatively minor. We understand that HMRC is seeking to reinforce their interpretation of the rules that SAO’s must certify that tax accounting arrangements are either appropriate or not appropriate; there is no middle ground.
Understanding the root cause of an issue
HMRC has identified a significant trend that the explanation around qualifications does not sufficiently set out the root cause of the issue, and instead is merely a summary of the error. HMRC is keen to ensure that the company has identified the root cause and that the remediation activity is appropriate to ensure the same error does not reoccur.
If SAOs follow the guidance (and there is no stipulation in the legislation over the wording of the certificate), an increasingly critical consideration will be the point of materiality for what is or is not relevant for the certificate.
HMRC confirmed that they are seeking to release updated guidance on the Senior Accounting Officer rules in the near future. We will share our insights as to what we understand the updates are likely to address in the new year and engage with you further when the updated guidance is released (no publication date has been confirmed).
In the meantime, Merry Christmas and have a wonderful New Year.
Following the recent Public Accounts Committee meeting to examine the Taxation of Multinational Corporations and recent treasury announcements about the tax affairs of Government suppliers, the amount of tax paid is under increasing scrutiny. At KPMG we believe greater tax transparency is inevitable going forward and now is the right time to get on the front foot.
My colleagues and I have written to many CFOs in the last few days to highlight this perspective and offer to meet and discuss the KPMG Framework on Tax Transparency. We also discussed the matter with the Financial Times and were pleased with the story published today “Big companies set to divulge tax details”.
As you may know, certain companies, plus the extraction industry as a whole, represent good examples of how businesses can use the concept of Tax Transparency to their advantage. Rather than allowing a misleading and misguided focus on corporate tax, these organisations educate customers, shareholders, Governments and the general public on the total tax paid, plus other non-tax investments that deliver wider economic benefit.
As we enter the results season, the attention on this topic looks set to increase. We are being asked to help clients prepare to answer questions about their tax payments, structures and policy. As a result, KPMG has developed a Tax Transparency framework to answer five key questions:
- How much tax are you paying and where are you paying it?
- How do you compare to your sector peers and wider industry?
- What is the wider economic benefit delivered by your business?
- Can you provide assurance that any tax planning undertaken (current or historical) could be explained satisfactorily to tax authorities, wider Government, customers or the press?
- What is your communications approach to tax?
With the above questions in mind, I will be hosting a web briefing on 4th December at 1400 and would be delighted if you could join me to discuss the topic of Tax Transparency and the framework that KPMG has developed.
To register for the web briefing (or if you would rather arrange a meeting), please email firstname.lastname@example.org.
We look forward to welcoming you to the web briefing.
KPMG UK Head of Tax and Pensions
Recent stories in the press over the amount of tax multinationals pay in local jurisdictions has reignited the debate over tax planning and the extent to which companies contribute to the countries within which they operate.
There is an increasing appetite for companies to disclose payments to governments under the new transparency agenda and, indeed, the Dodd Frank rules in the US and the Transparency Directive in the EU may well make this mandatory for listed and large companies within certain industries.
Senior Accounting Officer legislation in the UK introduced increased oversight over a company's tax affairs and transparency could enhance the requirement to disclose further details of a company's tax affairs; only this week there was a call by a member of the all-party parliamentary group on business, finance and accountancy for big businesses to publish the total amount of corporation tax paid to HMRC each year.
Whether a company wishes to voluntarily disclose details of its tax contribution (and a number already do) in the light of public scrutiny or are forced to do so by law, there is undoubtedly a perceived need of being able to articulate a company's tax philosophy to a wider group of stakeholders.
If you would like to contribute further to the ongoing debate on this new agenda and the impact it may have for companies and tax functions of the future, and more immediately from an SAO perspective, please feel free to contact me with your views and opinions.
We are seeing increasing evidence of HMRC adopting a sterner stance over late filing of Senior Accounting Officer certificates. Under the existing regulations, a failure to notify and provide a certificate by the due date is likely to result in penalties being levied on both the company and the SAO personally.
Interestingly, Customer Relationship Managers appear to be using late filing as an opportunity to engage with CFOs on a wider basis and asking questions around levels of SAO training and guidance within an organisation and not just on why the certificate and notification were not submitted on time (and whether this might constitute a reasonable excuse).
A recent KPMG WebEx indicated that 66% of attendees had qualified certificates filed by the end of September 2012. With the 31 December filing date (and the holiday season) fast approaching, limited companies with a March year end and plc’s with a June year end should ensure that sufficient time is allowed for discussion around qualifications and to allow certificates to be filed and acknowledged by HMRC well before the submission date.
KPMG have developed a model ‘SAO timeline’, setting out the timing of various SAO compliance activities and how these interact during a certification period. Given HMRC’s enhanced focus on late filing, this is something SAOs should clearly be aware of before signing their certificate .
On the face of it, CFCs (Controlled Foreign Companies) are not qualifying companies for Senior Accounting Officer purposes; however there are issues for SAOs to bear in mind when discharging their responsibilities.
The main area of focus for SAOs will be in respect of the accuracy of the apportionment of a CFC's profits to a UK subsidiary (that is within scope for SAO purposes). Typically, overseas entities operate beyond the central management’s direct oversight and hence reflect an area of greater risk.
It is therefore important to ensure that there are appropriate accounting arrangements within the CFC. With the increased attention Customer Relationship Managers (CRMs) are being asked to give SAO, SAOs should be prepared for their CRM to ask how they have managed compliance with the CFC regulations.
If you have recently submitted a qualified certificate for your 2011 year end, and have yet to remediate and embed the revised accounting arrangements, you are potentially at risk of being in the situation of having to submit a qualified certificate in respect of 2012.
But more importantly, because the SAO requirements apply throughout the year, a company with a 31 December year end for example, could end up in the situation where an issue relating to 2011 also gives rise to a qualification on their certificate submitted in 2014! This is because the issue has not been wholly remediated before 1 January 2013. Such a situation would require careful messaging with both the SAO, if you are the head of tax, and your CRM.
Do you have a robust remediation programme with allocated change owners, which is being monitored to ensure progress against predetermined milestones? Will this deliver the changes before 2013? If you have any concerns regarding your remediation programme please do contact me or your client service team.
HMRC has recently published a “Senior Accounting Officer core script for CRMs (PDF 29 KB )” on its website that sets out key messages on SAO beyond the ‘light touch’ year. Please click on the quoted link to access it.
The script provides a concise framework for the CRMs (Customer Relationship Managers) to help them have purposeful discussions with SAO qualifying groups as part of their routine meetings. Some of the key points include:
- SAOs should discharge their responsibilities throughout the year, and not simply at the year-end;
- Having in place mechanisms for identifying, on an ongoing basis, the risks that might result in the tax returns not being accurate and ensuring processes and controls are in place for managing and monitoring these risks;
- SAOs should consider both likelihood and impact when evaluating tax risks, and on this basis make a judgment about the extent to which a risk needs to be mitigated, i.e. a formal tax risk appetite across all taxes within the business;
- HMRC expects CRMs to discuss with the SAO what they are doing to discharge their responsibilities as part of the Business Risk Review.
For more guidance on how KPMG recommends tax risks are managed as part of the SAO regulations, read Managing Tax Risk: Is your reputation at stake? (PDF 606 KB)
HMRC sees open and transparent discussions with large businesses about their tax accounting arrangements as key to the successful application of this measure.
Following the feedback from our most recent SAO Forum earlier this week, we will be repeating the 'open topic' online Q&A session at 9am on Tuesday 18 September 2012.
If you would like to join the "open topic" online Q&A session please register by emailing the SAO Tax Diary by Friday 14 September 2012.
The timing of this session is to assist those companies with a September deadline for submitting their certificates. The highlight coming out the previous session for us was that 66% of respondents voted “yes” when asked whether they had or were intending to submit a qualified certificate this year. We believe this and the results from other votes are valuable, so please let us know if there are any issues that you would be interested in being put to a vote, as well as any other questions by emailing SAO Tax Diary.
Many organisations feel they have sophisticated systems for recording and analysing their tangible fixed asset additions and believe these meet the SAO requirements. However, with the increased focus by HMRC on identifying and capturing tax risks for SAO purposes, our experience shows it can be beneficial to challenge this assumption.
Recent work with one of our clients has shown that simply having a sophisticated system may not address all your compliance issues. In this case, tangible fixed asset expenditure was being incorrectly allocated to various categories, which affected the tax treatment of the expenditure. This was in part due to the lack of knowledge and experience of the detailed tax rules by the individual involved.
As well as being a potential weakness for SAO purposes, this could actually be costing the organisation money in terms of not making the correct claims for tax relief.
It is therefore paramount that organisations not only have systems for recording and analysing their tangible fixed asset additions, but also that these are operated by staff with appropriate technical knowledge and are reviewed on a regular basis, not only for changes to tax law, but also for changes to the data input into the system.
We have recently been made aware that HMRC’s Penalties Consistency Panel have decided to levy two Senior Accounting Officer penalties on a single company.
The penalties have been raised for:
- failure to notify HMRC of the name of the SAO, chargeable on the company;
- and failure to provide a certificate to HMRC within the required time, chargeable on the SAO individually.
As far as we are aware these are the first penalties to be levied by HMRC, illustrating a change in approach. The decision to raise these penalties appears to be borne out of HMRC’s perception that the company is experiencing difficulties in the relationship between its finance and tax teams.
This highlights again the importance HMRC is placing on governance as part of a company’s tax accounting arrangements.
Following the success of our first interactive SAO Forum in July we will be repeating the 'open topic' online Q&A session with a panel of the KPMG Core SAO Team. The timing of this session is to assist those companies submitting certificates in September.
Participants will be able to discuss current issues including HMRC's increased focus on tax risk and regular ongoing monitoring outside of the 'light touch' first year.
Date: 9-10am Tuesday 4 September 2012.
If you are interested in joining the forum or attending the online Q&A session and have not yet received an invitation, please email email@example.com.
For those of you who were unable to attend the first session, the 'open topic' format of the WebEx is wholly reliant on your questions and we try to respond to questions on a first come first served basis, so please do submit your question in advance of the session by emailing the SAO Tax Diary by Friday 31 August 2012.