SAO penalties – What is “Unreasonable” behaviour?

 

Where an SAO fails to comply with their main duty to take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements in a financial year, a penalty of £5,000 is chargeable on the SAO for the financial year.

But what constitutes “reasonable” and what type of behaviour is falling short of that requirement and resulting in HMRC imposing penalties?

HMRC’s internal guidance states the following:

The steps an SAO must take to ensure the company establishes and maintains appropriate tax accounting arrangements might include such responsible actions as:


– Establishing and monitoring processes

– Ensuring staff and businesses to whom work is outsourced are appropriately trained and qualified to undertake their functions

– Instituting improvements where shortcomings have been found in the tax accounting arrangements.

 

HMRC SAOG Manual SAOG14100

A concern for SAOs is to understand what degree of ongoing testing and assessment of the

tax accounting arrangements is required in order to satisfy their main duty. HMRC are pushing companies to be proactive in their SAO monitoring and want to see more extensive testing being undertaken. They want to understand the specifics of the activities that have been conducted through the course of the year on which the SAO has relied.

It is therefore important for SAOs to be able to produce documents evidencing the work that has been carried out prior to certification. This documentation would be key in the event of a challenge by HMRC.

Types of behaviour that can result in a failure to meet the main duty obligations and lead to penalties include:

  • relying on reviews and testing carried out in previous years without revisiting and updating these activities during the current year,
  • relying on controls or improvements implemented in prior years without testing them on a rolling basis,
  • not undertaking any SAO compliance activity until after the year end.

 

SAOs are required to perform their duty throughout the year and must be able to demonstrate having done so to HMRC’s satisfaction. It is not something that can simply be considered at certification time.

For more information on SAO requirements download our White Paper here.