How to Stay Safe from HMRC
29 September 13 | By: Jas Jhooty
Recently HMRC issued a brief to companies falling under Senior Accounting Officer (SAO) legislation. This brief warned SAOs that HMRC will no longer accept ambiguous certificates returned by SAOs that do not explicitly state whether the company has in place appropriate tax accounting arrangements.
To assist SAOs, HMRC have provided an example of the level of detail that they expect to see returned by a qualifying company paying a large number of staff travel expenses.
In this example Company A employs a large number of staff who regularly travel for business purposes. The accounting system allows members of staff to claim their expenses electronically. Each month the company checks a sample of expense claims back to the original receipts and journey details for accuracy. It corrects any errors found and follows up the reason with the employee. If the error might occur for other employees, it issues guidance to all employees to reduce the risk of the errors being made by others and, where it is practical, amends its electronic claims system to prevent the error re-occurring.
Where it is not practical to amend the accounting system to prevent the error re-occurring, it programmes the system to flag up any claims that contain the feature that led to the error for checking. It reviews total expenditure against historic spend and checks for large and unusual items quarterly.
What to do if things go wrong
When the company discovers errors from the sample checks it corrects them and issues further guidance to its staff, amends its system, discusses this action with HMRC’s Customer Relationship Manager (CRM) and makes an appropriate adjustment in the tax computation.
Within the context of this company the system is clearly robust. It contains reasonable checks and levels of monitoring to ensure that expense claims are dealt with appropriately. Once an error is discovered, it takes steps to ensure the errors do not occur in the future. The system appears to enable the company’s relevant liabilities to be calculated accurately in all material respects, so HMRC are likely to regard it as an ‘appropriate tax accounting arrangement’.
What if your procedures are not robust enough?
If the company has no arrangements in place to identify why these errors occurred and therefore to prevent them re-occurring, HMRC are likely to take the view that this represents a shortcoming in the tax accounting arrangements. This shortcoming needs to be expressed on a SAO certificate
How the SAO should complete the required qualified certificate
For the above scenario, HMRC provides the following example of what the SAO should include in the required qualified certificate: -
Company A’s system for accounting for travel expenses includes a range of checks which enable it to identify errors and calculate the related under or over declaration of tax which is then disclosed. However, there are no arrangements in place to identify why these errors have occurred and therefore to prevent them re-occurring and consequently I have regarded this as a shortcoming in the company’s tax accounting arrangements.
How emTax can help
The above scenario is not ideal for the company or for the SAO. Returning such a certificate will put the company at greater risk of an Employer Compliance Review, but if the SAO is tempted to continue to provide ambiguous statements they will definitely be at risk of facing personal penalties.
We are also aware that currently HMRC are requesting that qualifying companies apply for updated dispensations as an excuse for HMRC to check the strength of the company’s expenses policies and procedures. This is with a view to apply potential SAO penalties for incorrectly completed certificates for prior years.
The best course of action would be to get our consultants to review your current expenses systems and procedures and implement strategies to correct any shortcomings uncovered. This will enable SAOs to confidently state that they have the appropriate tax accounting arrangements in place on their required certificates.
Don’t forget that we provide exactly the same quality of advice on employment tax matters as the Big 4 accountancy firms but at a fraction of their prices. For more information about this or any other employment tax related matter, please do not hesitate to contact us.