HMRC is increasingly targeting C-suite executives as part of its efforts to hold individuals at large businesses to account, with 152 CFOs and senior finance executives personally fined for tax accounting failures last year (year-end 31st March), says Pinsent Masons, the international law firm.
The number of CFOs and senior finance directors fined has increased 22% over the last year alone, up from 125 in 2017/18. Only 46 individuals were fined five years ago in 2012/13 – the first year in which fines were levied.
Pinsent Masons explains that the Senior Accounting Officer regime, introduced in 2009, allows HMRC to issue fines of £5,000 to the most senior accounting officer in qualifying companies if they fail to properly “account for their business’ income and expenditure” for tax purposes.
As Jason Collins, Partner at Pinsent Masons, says: “HMRC is on a mission to hold the most executives that they can to account and C-suites should take the high number of fines issued last year as a warning.”
“Tax Tribunals have already called HMRC’s approach to issuing these fines heavy-handed but this does not seem to have made a difference. These fines are being used as a stick to ensure finance directors do not allow systemic tax accounting failures to arise.”
“Considering the pace of actions by HMRC against CFOs and FDs, businesses may need to invest more money in controls in this area.”
The largest number of fines were imposed on CFOs and senior finance executives within the retail sector last year (24), followed by transport (14) and oil & gas (11).
Pinsent Masons says the high number of fines within these sectors may partly reflect HMRC’s increased focus on employment tax compliance. HMRC is treating claims of self-employed status in some industries with growing scrutiny amidst concerns that it is being used by employers to reduce their tax bills.
Executives could be fined if HMRC deems that they did not have adequate controls in place to prevent de facto employees being treated as contractors.
Pinsent Masons adds that HMRC’s new ‘off-payroll working rules’, which will be introduced in April 2020, could result in a further increase in the number of executives fined. The rules will make businesses liable for determining employment status and ensuring the right amount of tax is paid by contractors who operate through limited companies.
Jason Collins adds: “Not only will HMRC’s new off-payroll rules add an extra layer of administrative costs for businesses but could also result in individuals being fined for any failures.”
The rules apply to UK businesses with a turnover of more than £200 million and/or a balance sheet total of more than £2 billion for the preceding financial year. Each individual company in a group meeting these thresholds must comply.