Policy paper

Revenue and Customs Brief 19 (2013): senior accounting officer guidance updates

Published 5 August 2013

This policy paper was withdrawn on 1 June 2016

This information has been updated, for the latest information please refer to the Senior Accounting Officer guidance manual.

Introduction

This Revenue and Customs Brief draws attention to:

(1) HM Revenue and Customs (HMRC’s) view on companies falling within the Senior Accounting Officer (SAO) rules which meet the qualifying criteria and whose shares are held by a parent on trading account (commonly a situation involving banks or private equity (PE) groups).

(2) Recent updates to HMRC’s SAO Guidance (SAOG):

(a) the form of certificate that an SAO must provide to HMRC as prescribed in the SAOG (SAOG15200 onwards)

(b) other recent updates to the SAOG, including:

• clarification of HMRC’s interpretation of the ‘turnover test’ (SAOG11232)

• provision of an example of balance sheet aggregation (SAOG11285)

• clarification of HMRC’s view on the operation of the SAO rules when a qualifying company fails to identify its SAO (SAOG12100; 12200; 16300; 16400; 16500)

• slightly revised wording in SAOG14330; 14352 and 14353 to improve consistency of language with the SAO legislation

• clarification that the concept of ‘in all material respects’ should be considered in relation to a company and not a group (SAOG14330)

• clarification of HMRC’s view on the responsibilities of an incoming SAO in relation to the period covered by their predecessor (SAOG15200)

• clarification of HMRC’s application of the SAO penalty provisions in group situations (SAOG18300, 18400, 18500 and 18600)

• clarification of HMRC’s view that the SAO for the representative company in a VAT group must carry out his or her SAO duties in relation to the group’s VAT liabilities (SAOG14335; 14460; 15100; 16710; 18400 and 18600)

• revised wording to reflect recent organisational changes in HMRC (SAOG13100; 13400; 16100; 16300; 16500; 16600; 16700; 16900)

• revised wording and updated guidance regarding penalty assessments, appeals, reasonable excuse and postponements ( SAOG20100 and 22450)

These updates do not represent changes in policy - they are intended to clarify HMRC’s interpretation of the SAO rules. However, the updates regarding HMRC’s view on the duties of an SAO for the representative company of a VAT group provide clarification regarding an issue not previously explicitly addressed by the SAOG.

Who needs to read this?

Companies and SAOs falling within the SAO rules and their agents. Further detail is given below.

Shares held on trading account and the SAO rules

A UK company will fall within the SAO rules if it is a 51% subsidiary of another company, provided that it meets all the SAO qualifying criteria, even if its shares are held on trading account. This situation will commonly arise where a bank or private equity (PE) group holds shares on trading account.

It is a question of fact who the SAO for a company is. The SAO of a company, whose shares are held on trading account by another, may be an officer of the company which holds the shares; an officer of the company whose shares are held or even an officer of another company within the group.

Where such a company comes within the SAO rules for the first time, for example as a result of a ‘debt for equity’ swap, it is possible that its SAO and other officers may not be immediately aware of their obligations under this legislation. It may be possible - depending on the facts of each case - that a company whose shares are held on account by another and its SAO have a ‘reasonable excuse’ in the first instance for not complying with their respective SAO-related obligations, provided these failures are put right without delay once they became aware of their obligations.

HMRC expects that where this situation arises, companies holding the shares of other companies on trading account will have appropriate systems and governance in place to be able to identify those other companies, and will ensure that HMRC and those companies are advised of the position and their SAO obligations. However, the legal responsibility to notify the name of the SAO lies with the qualifying company itself, not with the owner of its shares.

If a company falling within the SAO rules does not have a HMRC Customer Relationship Manager (CRM), and has not come to HMRC’s attention for SAO purposes, the company should contact HMRC to discuss being allocated a CRM.

The form of SAO certificates

SAOs are required to provide the Commissioners of HMRC with a certificate for each financial year of the company. The certificate must state whether the company had appropriate tax accounting arrangements throughout the financial year and, if it did not, give an explanation.

This certificate must be provided by such means and in such form as is reasonably specified by HMRC.

When the SAOG was revised in April 2012, HMRC updated its guidance in respect of the specified form that an SAO certificate must take, and provided detailed specimen examples (SAOG15200 onwards). However, HMRC has continued to see examples of certificates which do not state unambiguously whether the tax accounting arrangements were appropriate or not.

It is the SAO’s responsibility to make a considered judgement, in the light of all of the information available to him or her, to determine whether or not the company had appropriate tax accounting arrangements for the year. Therefore, the certificate specifications in the SAOG are intended to provide a clear and categorical form of wording to enable SAOs to fulfill their obligation. Any alternative form is unlikely to meet HMRC’s requirements.

To this effect, the guidance at SAOG15200 onwards has been updated to clarify that HMRC will not accept ambiguous certificates.

SAO duties in respect of VAT groups

VAT group treatment allows two or more corporate bodies to account for VAT under a single registration number with one of the corporate bodies in the group acting as the representative member. The group is registered in the name of that representative member, who is responsible, on behalf of all of the other members of the group, for completing VAT returns and paying and reclaiming VAT.

All supplies of goods and services made by any member of the group to a third party outside the group are treated as having been made by the representative member. Similarly, any supply of goods or services made by a third party outside the group to any member of the group is treated as having been made to the representative member (further information is available in the VAT Groups manual).

The SAO of a qualifying company must take reasonable steps to ensure that the company establishes and maintains accounting arrangements that enable the company’s VAT liabilities to be calculated accurately in all material respects. Where a company is the representative member of a VAT group it is responsible, on behalf of all of the other members of the group, for completing VAT returns and paying and reclaiming VAT. It is for the SAO of that representative member to be satisfied that their company is receiving accurate information from the other group companies to enable it to accurately complete its VAT returns. It is HMRC’s view that the arrangements that will be needed to gain this satisfaction will fall within the main duty obligations of the SAO of the representative member.

The guidance at SAOG14335; 14460; 15100; 16710; 18400 and 18600; has been updated to reflect HMRC’s view on this matter.

Applying the updated guidance

These updates to the SAOG do not represent changes in policy and will apply from the date of publication.

HMRC appreciates that there is likely to be a lengthy sign-off process for SAO certificates. This may mean that some certificates will have been drafted before the guidance was updated, but will be submitted to HMRC after the updated guidance is published. If, following publication of the revised guidance, an SAO submits a certificate which does not comply with the updated guidance, HMRC will consider the facts of the case to determine whether the SAO had a reasonable excuse for not submitting a certificate in accordance with the revised guidance.

HMRC is also aware that its view on the duties of an SAO for the representative company of a VAT group was not previously explicitly addressed by the SAOG. In relation to this issue, HMRC will not charge penalties where previously SAOs have not acted in accordance with the new guidance for any period up to the first period commencing after the publication of this revised guidance.

Issued 5 August 2013