The UK government has watered down its plans to establish a statutory requirement for senior company officers to certify that adequate controls to prepare accurate tax computations are in place in the face of growing disquiet about the implications of the controversial proposals among tax executives.
Earlier this month, the government quietly announced its intention to “limit the measures ‘to those companies with a large business relationship (with the government).’” This will broadly affect 2,000 or so companies with a turnover of more than GBP200m (USD318m) instead of the 15,000 companies which would have been hit by the new rules as they were initially drafted in the 2009 budget.
In addition, Financial Secretary to the Treasury Stephen Timms, has announced the government's intention to remove the requirement to notify the company’s auditor.
A survey published by Deloitte, the business advisory firm, reveals that major UK companies harbour “serious concerns” about Clause 92 of Finance Bill 2009, which covers the duties of senior accounting officers (SAOs) of large companies.
According to the poll of over 100 senior finance and tax figures from FTSE 100 firms conducted ahead of the House of Commons debate on Clause 92, 87% say the measure will cost between GBP50,000 and GBP250,000. Of FTSE 250 firms, 85% believe the figure will be between GBP50,000 and GBP100,000.
The poll showed that 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. However, 58% of FTSE 100 companies and 64% of FTSE 250 firms believe that incurring a penalty would have a detrimental impact on the SAO’s career and reputation. Of all areas of tax, 46% highlighted value-added tax (VAT) as the area likely to cause the most concern, while 26% stated payroll taxes and 19% corporation tax.
“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,’” said Alan MacPherson, tax partner at Deloitte.
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,” MacPherson said.
The 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).
According to the Treasury’s Lobby Notes, Clause 92 and Schedule 46 as originally drafted: “provide that senior accounting officers of large companies are required to take reasonable steps to ensure that the company and its subsidiaries (if any) establishes and maintains appropriate tax accounting arrangements.”
The Lobby Note continues: “Senior accounting officers must provide the company auditors and HMRC with an explanation of the respects in which those arrangements are not appropriate. Large companies must notify HMRC of the name of the senior accounting officer. The clause includes a power to impose penalties on both senior accounting officers and companies who fail to comply with these requirements. The change has effect in relation to financial years beginning on or after the day this Act is passed.”
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 August 1, 2009. The majority of companies (which have December year ends) will have until January 1, 2010 to identify and plan to 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,” Macpherson continued. “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.”
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.”
Deloitte urges SAOs at companies falling under the proposed legislation to conduct a high-level review of tax controls and a more detailed view of the existence and effectiveness of their controls.
“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,” added Dodwell.
While the government hopes that the proposals will generate an additional GBP140m in tax revenues, one tax and legal expert has warned that Britain is in danger of introducing US Sarbanes-Oxley style legislation 'by the backdoor' which would severely damage the country's competitiveness and further encourage companies to emigrate.
"It is an extraordinary retrograde step which shows little sign of learning the lessons of Sarbanes-Oxley," said Michael Wistow, head of tax at Berwin Leighton Paisner, the international law firm.
The Sarbanes-Oxley Act, (otherwise known as Section 404) was passed by the US Congress in 2002 in response to a slew of fraudulent corporate collapses. Its primary purpose was the improvement of transparency for public companies, but the legislation has proved controversial and has been frequently attacked for saddling public companies with overly burdensome reporting requirements.
.
Network Tweets
Network BlogsContent
provided by
|
Archive | Resources | Partners | Site Map | Links | Newsletter Archive | Contact | RSS Feeds | About | Syndication | Advertising & Marketing | Recruitment | Terms & Conditions | Privacy & Cookies
Copyright © 2012 - All Rights Reserved - Tax-News.com
IMPORTANT NOTICE: Tax-News.com has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments.
Write a comment