The first appeal by an individual Senior Accounting Officer (SAO) has been heard by the First Tier Tribunal (FTT). HMRC imposed penalties totalling £10,000 on the individual for failing to take reasonable steps to ensure that the company that employed them in the role established and maintained appropriate tax accounting arrangements. The SAO regime requires an SAO to be appointed in relation to each “qualifying company” and for the SAO to certify to HMRC whether the company had appropriate tax accounting arrangements in place for the relevant financial year.
Whilst the the size of the penalties were relatively modest, the FTT commented that their potential impact on the individual in terms of reputation and, potentially, employment prospects, could be more significant.
The individual was the Finance Director for a privately owned group of companies. One of the group members was International Currency Exchange plc (“ICE”) whose activities included the provision of currency exchange and other financial services. ICE was the representative member of a VAT group.
HMRC contended that the individual breached the “main duty” under the SAO regime. In this case, HMRC were of the view that the individual failed to conduct, or have in place any system of, selective or “thematic” testing or sampling of figures in the ICE VAT returns or of individual transactions to ensure that the figures in the returns were correct, and that he instead relied excessively on variation testing, i.e. simply comparing figures with those in previous returns. Given the complexity of the business carried on by ICE from a VAT perspective and the fact that group’s accountant undertook detailed work, including reviewing invoices and processes in order to agree the new PESM in June 2010, the FTT was not satisfied that HMRC established a breach of the main duty in failing to ensure selective testing. The FTT allowed the appeal and the cancelled the penalties imposed by HMRC.
HMRC’s approach to this case caused the Tribunal some concern; however, it highlights the importance of ensuring appropriate review processes are in place within larger corporate groups. It can often be difficult for a business to determine its indirect tax needs and a forthcoming change in VAT law or in business structure may give rise to an immediate need for expert in house VAT support. CVC can offer regular in house support, at any level, to see a business through a difficult period, or on a continuing basis.
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