UK tax authorities have issued fines for 115 senior finance directors in the last year, a 150 per cent rise from five years ago and a sign HM Revenue & Customs is standing its ground in efforts to hold executives personally responsible for corporate failings.
Tax lawyers and accounting professionals have become increasingly concerned about what they call HMRC‘s “trigger-happy” approach towards chief financial officers of Britain’s largest companies; all those fined work for companies with annual revenues of more than £200m or assets of more than £2bn.
But HMRC has defended targeting the executives personally, saying it was an effective way of ensuring corporate books are properly maintained.
“It is crucial that senior accounting officers take responsibility for their organisation’s accounting systems, and HMRC will impose penalties where they fall short or fail to provide the relevant documentation,” said an HMRC spokesperson.
The rise in fines has come since the government was given new powers in 2009 to target individuals in senior finance roles. The so-called Senior Accounting Officer regime enables HMRC to fine executives up to £5,000 for failing to ensure “appropriate tax accounting arrangements”.
The tax authority initially adopted a light-touch approach, but has used increasingly aggressive tactics over the past three years, according to Jason Collins, partner at Pinsent Masons. Although a sharp increase since 2012, fines issued during the 12 months to the end of March actually fell from the previous year, when 181 were issued.
“HMRC is going after the most senior people it can, without exceptions,” Mr Collins said. “Putting finance directors in the line of fire is a definite escalation of HMRC’s tactics.”
Executives in the financial services and retail sectors received the highest number of fines last year, with 16 penalties each. The energy sector saw the largest increase in individuals fined, from nine to 14.
HMRC’s tactics have also come in for criticism from the judiciary, with a tribunal in August criticising the tax authority for going after executives regardless of whether they work for small or large companies.
In that ruling, the first legal challenge to the HMRC’s authority, Kreeson Thathiah, former finance director of privately owned Lenlyn Group, which includes the International Currency Exchange, successfully appealed against two £5,000 fines issued by HMRC for his oversight of tax accounting practices in 2011-13.
“Effectively it was assumed that any company [caught by the regime] should be held to the same standard,” wrote the judge overseeing the case. “In my view there is a significant distinction between a company with a small finance team that is just over the qualifying company threshold and a major financial institution with a large tax department.”
Mark Stapleton, a partner at the Dechert law firm, said the ruling left many with the impression that “perhaps HMRC were too ‘trigger-happy’ in levying the penalties”.
David Harkness, tax partner at the law firm Clifford Chance, said pressure from HMRC on finance directors and the growing focus on personal liability was worrying clients.
“It is almost inevitable that sometimes errors will occur and although the legislation provides a defence where there is a ‘reasonable excuse’, there is a worry that HMRC will not accept that excuses are reasonable,” Mr Harkness said.
“It would be helpful if HMRC could be more open about how the SAO regime is working, and why fines are being awarded. It is an area of concern to clients.”
Madison Marriage write this news and you can keep up with FT