FDs and the SAO regime

Source: The Financial Director newsletter
Written by: Peter Williams

FDs are being lumbered with the senior accounting officer role ­ but, oddly, they’re not protesting

UK finance directors are facing one of the biggest changes in compliance to hit their companies in decades. But you can’t hear so much as a collective tut. The introduction of the concept of a ‘senior accounting officer’ or SAO is more than a corporate imposition; it is a personal threat to each and every FD. So where are the voices raised in protest? So far, nowhere to be seen. And that’s astonishing.

As this issue barely seems to have hit the radar, FDs may need reminding why they should be up in arms. The 2009 Budget introduced requirements for the SAOs of large companies and groups to report to the taxman on the adequacy of their accounting systems for tax returns. And the real sit up-and-take notice bit? The SAO will be personally responsible for complying with these new requirements. And just to confirm the inevitable: a poll by PricewaterhouseCoopers indicates that more than 80% of companies are naming their FDs their SAO.

The SAO sign-off measure came into effect for financial years starting on or after the date of Royal Assent on 21 July 2009. At the moment, the regime only applies to companies or groups with turnover of more than £200m or gross assets of £2bn so big companies with a July year-end are already dealing with these requirements. The majority of companies with December year-ends have little time left to put their house in order. Under the rules, the SAO will have to provide annual assurance to HM Revenue & Customs that appropriate tax accounting policies and processes are in place and maintained.

The SAO regime is reminiscent of the US’s Sarbanes-Oxley Act, which also forced companies to focus attention on risk and processes. However, while Sarbox was greeted with howls of outrage and non-US companies threatening to quit the US to avoid falling under its regime, SAO has been meet with equanimity.

Perhaps the calm is due to HMRC saying it will apply a light touch in the first year of implementation. Even so, the SAO will still need to be able to demonstrate that their company is taking reasonable steps to review the appropriateness of the tax accounting arrangements in their business. Let’s put this in a wider context: as recession bit, government tax revenues collapsed. It desperately needs as much cash as it can lay its hands on, so squeezing big corporates looks like as good a source as any and the SOA legislation looks like an irresistible tool to make tax revenues flow.

Surprisingly, the PwC survey suggests that, among tax professionals, the SAO is seen in a relatively positive light, with one-third saying it provides an opportunity to drive improvements, such as reducing manual interventions. But then, the tax guys aren’t likely to be the SAO, so might be quite happy to see their FD boss squirming under the compliance spotlight.

The SAO regime covers different taxes and looks at the totality of processes and systems used to support tax compliance. The tax named as having the biggest risk was VAT, named by 54% of the survey, followed by corporation tax (22%) and PAYE (19%).

Tax is notoriously difficult to get completely right and the interface between it and the other part of a company’s financial systems is often held together with little more than a few tired spreadsheets. Even so, the message from UK plc is that the SAO sign-off will not be a major problem.

HMRC says it believes most groups are compliant but that there is a minority of large companies that need encouragement to up their game. The rationale as far as HMRC is concerned is that it wants senior management to take responsibility for systems and processes that can calculate and file accurate liabilities. It says there is an accountability gap in this area. Of particular concern to the taxman are those grey areas of the paypacket: expenses, benefits, short-term travel, secondees, entertaining, equity and termination. So as long as FDs can confirm everything is OK with those issues then my concerns are little more than journalistic hyperbole, even if the requirements are unlike anything seen in UK tax law, imposing personal duties and potential penalties on individual officers.

The only real positive that comes from this querulous piece of legislation is that tax may become a topic of more frequent discussion in the boardroom. And if that does happen, then it may act as a spur for companies to invest properly and substantially in their tax systems, bringing about, in many cases, long overdue transformation. Figures of spend of more than £50,000 seem to be the best guess for most companies, according to a Deloitte survey. But 10% think it will cost £250,000 or more to achieve compliance.

Maybe that figure needs to be set against the personal penalty for the SAO of £5,000 in relation to each failure of duty for each year. That bill will be covered by insurance: the cost to the FD’s personal reputation is not insurable.

Peter Williams is a chartered accountant and freelance journalist

SG comment: I thought this was a good article, which sums up the SAO regime situation so far, and also supporting evidence for large companies investing more heavily in tax technology systems over the next few years.

Tax advisers brand HMRC's move to XBRL 'strange'

Source: AccountancyAge.com

Tax experts have condemned the insistence from the taxman that corporate tax returns only be made in the future using the controversial computer language XBRL.

For accounting periods ending after 31 March 2010, corporate tax returns have to be submitted using XBRL, a language that tags financial data and allows comparability. The majority of corporate tax accounts are currently filed using Microsoft Word or Excel.

But tax advisers have described the decision to adopt XBRL as both ‘strange’ and placing an ‘unwanted overhead’ on small business.

Tony Spillett, tax partner at BDO Stoy Hayward, estimated the cost of implementing XBRL could be ‘tens of thousands of pounds’ per firm.

‘There’s potentially a lot of work to be done. There’s a lot of red tape and additional burden on business so that HMRC can make life easier for themselves. It’s a real unwanted overhead,’ he said.

He added the long-term shift away from paper filing was welcome, however ‘it’s the devil in the detail and the way the HMRC has used the opportunity to capture the data in XBRL form [that] is concerning’.

According to Kevin Salter, technology partner at Glover Stanbury & Co, the decision by HMRC to adopt XBRL as the required format is strange given so few firms currently use the system.

‘We have no choice. I don’t know what their rationale for going down that route is. Various representations have been made by accountancy bodies but they’ve chosen to go their own way,’ he said.

Salter said a contracted software house will implement the necessary change on behalf of the firm but expects support fees for the service to rise as a result of the new requirement.

Tax advisers believe the change to XBRL will mean HMRC has the capacity to mine data more effectively and could lead to an increase in the number of tax enquiries.

A spokeswoman for HMRC confirmed that if a return is not filed in the new format, it will be ‘disregarded’ and treated as not having been delivered.

She said HMRC has consulted with the profession over the change and is continuing to engage with the software industry.


SG comment: There are quite clearly some financial winners and losers within these proposed submission changes. The losers are the companies that have to adopt these changes, the costs of changing their systems, the penalties for getting it wrong, and knock-on defence work with HMRC from the numbers being 'tagged'. The winners will most likely be the Big 4 and practice from increased advisory and implementation fees, and the software houses from selling their accounting / tax systems to industry. It will be very interesting to see how this all gets rolled out over the next couple of years.

Banking code of practice - impact on front office tax teams?

The U.K. government will step up its anti-tax avoidance fight Monday, with the treasury announcing plans to ask banks to sign a code of good practice, a person familiar with the matter said Friday.

The person said the treasury will publish a consultation document Monday which will urge banks to be more transparent about their tax affairs.

The voluntary code, first mentioned in the budget in April, will encourage them to enter discussions with the U.K.'s revenue and customs agency about how to comply with the spirit of tax laws.

Banks will have 12 weeks to respond to the consultation but the government is confident most major institutions will sign up, the person said. It's thought there have already been talks on the code between the treasury and leading financial institutions.

The code of practice will build on a similar mechanism that HMRC has used to minimize tax avoidance from leading U.K. businesses.

The idea is to open a grown-up dialogue where banks can privately share information about their tax arrangements with HMRC, consulting with officials on what is acceptable and what HMRC considers inappropriate. A senior bank official - preferably a board member - will be asked to sign up to the code, the person said.

But if banks don't sign up to the code - or sign but don't improve their behavior - HMRC could adopt a more intrusive approach. The treasury isn't ruling out moving beyond a voluntary code if that approach fails to change banks' behavior.

"A voluntary code based on an open and upfront dialogue is likely to yield a more genuine behavioral change," the person said.

The move comes as the U.K. battles an economic recession that has taken large bites out of government revenue and bloated the budget deficit to record peacetime levels. The deficit will be above 12% of gross domestic product this year, with public sector net borrowing set to reach £175 billion.

In a bid to plug the fiscal gap, the treasury has become more aggressive in a number of areas, leading international efforts to press tax havens to be more open and seeking to tighten the rules for so-called non-doms, people who reside in the U.K. but are not domiciled here.

There are no exact estimates of how much the government hopes to save through the new code.

The disclosure regime introduced in 2004 requires avoidance scheme users and promoters to disclose details to HMRC. Since the introduction of this regime, HMRC has acted on information received to protect over £11 billion.

FDs / CFOs - are your tax controls adequate?

The Government announced a number of measures in this week's budget to ensure that businesses and individuals pay the right amount of tax and reduce the opportunity for evasion, avoidance or non-compliance. The clauses which I suspect will be mostly of interest to readers of this blog are:

- it will legislate for the publication by HMRC of the names of both corporate
and individual taxpayers who incur a penalty because they have deliberately
understated more than £25,000 of tax;

- it will establish a statutory requirement for senior accounting officers of major corporates to certify personally that adequate controls to prepare accurate tax computations are in place;

- HMRC will require those who have incurred a penalty for deliberate
understatement of over £5,000 of tax to provide more information about
their tax affairs for up to five years to ensure they have proper systems to be
able to make a correct tax return; and

- HMRC will shortly issue a draft code of practice on taxation for the banking
sector, along with a consultation document.


This will be quite a significant issue for in-house tax functions, and clearly means that the FD / CFO of a business has a personal motivation for shining a torch over the systems and controls that are in place to ensure that the tax computations process is solid, thereby delivering accurate CT returns to HMRC.

This may lead to companies upgrading and investing in better tax technology solutions to put in place greater automation over the tax computations process, thereby increasing accuracy and reducing risk of error through possible out-of-date spreadsheet methods.

This new budget development will certainly be a topic debated at Talentpool's forthcoming Tax Technology discussion evening, to be held at the IoD on 29th April.

WPP confirms tax led relocation to Ireland

Source: AccountancyAge.com

WPP, the world's second-biggest advertising and marketing group, has confirmed it plans to move its official headquarters from Britain to Ireland because of punitive changes to the British tax regime.

A WPP spokesman told Reuters on Sunday the advertising giant was likely to issue a stock exchange announcement this week on its plans to change domicile.

The decision to move offshore will be a huge blow for the Treasury, particularly as Martin Sorrell, WPP chief executive, has acted as an ambassador for British business.

WPP, who paid ₤204m in UK taxes last year and conducts almost 90% of its business outside Britain, estimates the tax regime changes would add tens of millions to its British tax bill.

SG comment: This is quite a big deal for the Treasury as WPP do have such a high profile reputation in global marketing and advertising, and was worthy of a mention by David Cameron in his Conservative party conference speech today.

Henderson now looking at tax domicile change

Source: TaxGrotto.com

In response to a press article published in the UK today, Henderson Group plc has confirmed that it is considering a potential change in its tax domicile from the UK to the Republic of Ireland.

A further update will be given with the release of the Group’s 2008 interim results at 07:00 (London time) on 28 August 2008.

Established in 1934, Henderson is a leading independent global asset management firm. The company provides its institutional, retail and high net-worth clients with access to skilled investment professionals representing a broad range of asset classes, including equities, fixed income, property and private equity.

SG comment: This news feed echos my news on Shire back in May 2008. Where will it all end, Alistair?

WPP take view on UK tax system issue

Source: www.tax-news.com

As if Chancellor of the Exchequer Alistair Darling didn't have enough on his plate with the ongoing credit crunch, it has emerged that yet another FTSE100 firm is considering switching its corporate HQ abroad in protest at the UK's increasingly burdensome corporate tax regime.

Sir Martin Sorrel, head of WPP - the world's second largest advertising firm - told the BBC on Monday that if the Treasury introduced proposed rules to tax dividends earned by companies overseas in the UK, it could tip the balance in favour of relocating the firm's tax residence to a jurisdiction which does not tax such income, with Ireland likely to be top of the list.

"If the measures as is are introduced, ratified, confirmed and implemented, we will be taking a very serious look at the advantages and disadvantages [of moving its tax domicile and headquarters]," Sorrel was quoted as saying.

Sorrel's comments come hot on the heels of decisions by Shire Pharmaceuticals and United Business Media to set up holding companies in Jersey and relocate their corporate HQs to Ireland to cut their UK tax bills.

He went on to point out that WPP already pays a significant sum in tax to the Treasury each year - about GBP200mn (USD394mn) - and the proposed new rules could add tens of millions of pounds to the company's annual tax bill in the UK.

"We are talking about very very significant sums of money," he noted.

UBM follows Shire's tax move to Ireland

Various tax news websites are reporting today that United Business Media (UBM) is doing the same as Shire Pharmaceuticals, incorporating in Jersey and being tax resident in Ireland, with a FTSE listing. Although some camps are calling this blatant tax avoidance, I don't blame them if it is not clear how foreign profits are taxed in the UK, particularly if 85% of your profits are outside the UK. I don't think UBM will be the last FTSE group to announce this type of restructure.

Click here for the full announcement.

Shire Holding relocation - more tax insight

Further to my article last week about Shire changing its residency to Ireland from the UK, an article from www.tax-news.com sheds a little more light on the tax background to the decision. The article also mentions that c.200 companies have relocated their HQ in the last 10 years, which seems a lot more than I thought. I suspect that this number includes US parent groups that have moved their European HQ from the UK to somewhere in Europe, and not purely UK listed groups.

To read the full article, click here

FTSE 100 Shire relocates to Ireland for tax purposes

Source: AccountancyAge.com

The Confederation of British Industry has raised concerns about the UK's anti-competitive tax regime after Shire announced it would relocate to Ireland where tax rules are more favourable for business.

Richard Lambert, CBI Director-General, said: 'We are particularly worried that an uncompetitive corporate tax system is spoiling the UK's attractiveness as a place to do business, and that other internationally-mobile firms will follow Shire's path.'

FTSE 100-listed Shire, the third-largest pharmaceutical firm in the UK, is set to pay significantly less tax by becoming a tax resident in Ireland.

The company re-assured market concerns over the change of residency, saying the change would not affect Shire's UK operations or workforce. But this will mean a loss of income for the Treasury, the Telegraph reported.

A company statement said: 'Shire has concluded that its business and its shareholders would be better served by having an international holding company with a group structure that is designed to help protect the group's taxation position, and better facilitate the group's financial management.'

SG comment: I can't think of any other FTSE listed group to announce this sort of change of residency for tax purposes, it will be interesting to see if any other UK groups follow suit.