22% hike in senior accounting officer fines

HMRC is ramping up scrutiny of top level accounting executives at large businesses, with 152 CFOs and senior finance executives personally fined for corporate tax accounting failures last year according to Pinsent Masons

The scrutiny is likely to intensify in coming months as HMRC prepares to introduce significant changes to the IR35 rules affecting the taxation of contractors using personal service companies as liability moves to employers, so controls in this area will also need to be tightened up by private sector organisations.

The analysis by law firm Pinsent Masons shows for the year ending 31 March 2019, the number of CFOs and senior finance directors fined has increased 22%, up from 125 in 2017/18. Only 46 individuals were fined five years ago in 2012/13 – the first year in which fines were levied.

The senior accounting officer regime (SAO), introduced in 2009, allows HMRC to issue fines of £5,000 to the SAO in qualifying companies if they fail to properly account for their business’ income and expenditure for tax purposes.

Jason Collins, partner at Pinsent Masons, said: ‘HMRC is on a mission to hold the most executives that they can to account and C-suites should take the high number of fines issued last year as a warning.

‘Tax tribunals have already called HMRC’s approach to issuing these fines heavy handed, but this does not seem to have made a difference. These fines are being used as a stick to ensure finance directors do not allow systemic tax accounting failures to arise.

‘Considering the pace of actions by HMRC against CFOs and FDs, businesses may need to invest more money in controls in this area.’

The largest number of fines were imposed on CFOs and senior finance executives within the retail sector last year (24), followed by transport (14) and oil and gas (11).

The high number of fines across these sectors may partly reflect HMRC’s increased focus on employment tax compliance. HMRC is treating claims of self-employed status in some industries with growing scrutiny amid concerns that it is being used by employers to reduce their tax bills.

Executives could be fined if HMRC deems that they did not have adequate controls in place to prevent de facto employees being treated as contractors.

Pinsent Masons warns that HMRC’s new off-payroll working rules, which will be introduced in April 2020, could result in a further increase in the number of executives fined. The rules will make businesses liable for determining employment status and ensuring the right amount of tax is paid by contractors who operate through limited companies.

Collins said: ‘Not only will HMRC’s new off-payroll rules add an extra layer of administrative costs for businesses but could also result in individuals being fined for any failures.’

The rules apply to UK businesses with a turnover of more than £200m and/or a balance sheet total of more than £2bnon for the preceding financial year. Each individual company in a group meeting these thresholds must comply.

Pat Sweet

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