Bill Dodwell comments on survey and Clause 92
· 87% of FTSE 100 firms say the measure will cost between £50,000 and £250,000, 85% of FTSE 250 believe the figure will be between £50,000 and £100,000;
1 85% will seek to limit the personal liability on the SAO by having the company pick up any personal penalties incurred (only 3% thought that the SAO would pay the fine personally);
2 However, 58% of FTSE 100 companies and 64% of FTSE 250 believe that incurring a penalty would have a detrimental impact on the SAO’s career and reputation;
3 Of all areas of tax, 46% highlighted VAT as the area likely to cause the most concern, while 26% stated payroll taxes and 19% corporation tax;
4 Half are not comfortable with being immediately compliant with the new measure;
5 Two-thirds (80% of finance directors) would like to see the implementation of the use of appropriate materiality, ie for HMRC to be clear when setting the parameters around accuracy;
6 Personal liability aside, when asked which change to the legislation they would most like to see the responses were:
· Restricted to companies/groups with assigned Customer Relationship Managers (CRM) – 22%
0 Removal of auditor reporting requirement – 35%
1 Size of company caught by measures (i.e. increase size limits) – 20%
2 Taxes covered – 19%
3 Types of certificate that can be provided – 4%
During yesterday’s Commons debate on Clause 92, Stephen Timms, Financial Secretary to the Treasury, announced the intention to limit the measures ‘to those companies with a large business relationship and a CRM reflecting that’. This will broadly affect companies with a turnover of £200million.
Alan MacPherson, tax partner at Deloitte, says: “This would mean that a significant number of companies and groups that would have been included, based on the conditions contained in the draft legislation, would fall outside of the provisions, at least for now.”
In addition, Stephen Timms announced the intention to remove the requirement to notify the company’s auditor.
MacPherson continues: “Based on yesterday’s debate, there is no anticipated change to the taxes to be covered.
“The concerns of the companies surveyed are contrary to HM Revenue & Customs’ (HMRC) view that the measures will ‘impose no significant burden on those companies that have adequate accounting systems’. However, HMRC has acknowledged in the Impact Assessment for the legislation that companies which do not have adequate systems in place will need to invest in setting them up. We would expect the additional costs associated with implementing new systems and obtaining internal confirmations required by the SAO to receive a lukewarm reception from the business community at a time of challenging economic conditions.”
The proposals, originally announced in the Budget in April, will affect large companies, now expected to be those that are dealt with by Large Business Service and have a CRM. This measure is due to be introduced as part of Finance Bill 2009 with a view to ensuring that the accounting arrangements (including systems) in operation within large groups liable to UK tax are adequate for the purposes of accurate tax calculation (i.e. tax returns and supporting computations across all taxes – VAT, corporate tax, payroll taxes, etc). A proposed certification is to state whether the SAO has taken reasonable steps to establish appropriate controls over the company’s tax compliance obligations and the many systems which support them.
Macpherson comments: “The measures are expected to come into effect for tax returns (including VAT and employment taxes) for financial years starting on or after the date of Royal Assent in July. Therefore, companies with a July year end will be within the new rules from 1 August 2009. The majority of companies (which have December year ends) will have until 1 January 2010 to identify and plan to or correct any weaknesses.
“The other issue which many companies will encounter is that different taxes are managed by different business areas, which adds to the complexity of certification by the SAO. The SAO (likely to be the Finance Director) will be required to personally certify that the company is in compliance and will be personally liable to penalties for a failure to meet this and/or the associated reporting obligations.
“HMRC’s view is that this will impose no additional burden for ‘responsible’ companies, and they have said that they are steadfast on the principle (and therefore only willing to talk about the application).”
Bill Dodwell, head of tax policy at Deloitte, adds: “If the legislation is introduced as proposed, and given that the scope of the provision is likely to cover all taxes and encompass all ‘accounting’ systems which generate information on which a tax judgment depends, we are doubtful that many SAOs will immediately be comfortable to provide such a certification. SAOs may therefore look for support in the following areas:
A high-level review of the current state of their tax controls tested against an informed view of good practice and likely HMRC expectations, to identify areas of risk.
A more detailed review of the existence and effectiveness of their controls, with particular regard to areas of perceived weakness.
To the extent that this exercise identifies material gaps in relation to specific elements of the system and/or particular taxes then improvement may well be required.
SAOs may also require specific documentation to be made available to them to support their certification.”
“However, a review of an organisation’s accounting process may actually identify tax savings because they will be better able to identify and then support tax deductions.”[/private]