Budget Comment 2009

Further obligations for internal company accountants

New penalties have already been introduced for returns submitted without reasonable care being taken but there will now be an additional obligation making senior accounting officers personally liable for verifying their company's systems.

This announcement affects 'large' companies, that is those that satisfy two or more of the following conditions:

• annual turnover of more than £22.8 million,
• balance sheet value of more than £11.4 million, and
• more than 250 employees.

For accounting periods beginning on or after the date on which the Finance Bill receives Royal Assent, a senior officer within a large company will have to certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting. If they are unable to do so, the officer will have to specify the nature of any inadequacies and confirm to HM Revenue & Customs (HMRC) that these have been notified to the company's auditors.

Senior accounting officers will need to take reasonable steps to establish and monitor systems within the company to ensure they are adequate for accurate tax reporting. This will mean they will have to stand back and objectively review the internal systems and controls in place. While the company's annual audit will go some way to giving officers comfort on these issues, the reference to 'accuracy' in reporting will invariably require something more than a level of materiality sufficient for audit purposes.

Companies will also have to identify the senior accounting officer to HMRC. By notifying the identity of the company's senior accounting officer, HMRC will be able to levy penalties on that person, as well as on the company. Penalties are also to be introduced where an incorrect notification or certification is given carelessly or deliberately.

HMRC's view is that responsible companies will already have sufficient systems in place so that this announcement will not introduce a further administrative burden.

As ever, where taxpayers are required to behave 'reasonably', an element of uncertainty will arise over precisely what HMRC's expectations are and there may be doubts over the likelihood that these are the same as the companies affected. When a company is undergoing a period of change in their systems, for example after acquiring another business, this obligation will exert additional pressure.