Out-Law / Your Daily Need-To-Know

Out-Law News 1 min. read

Over 150 CFOs and senior finance executives personally fined last year by HMRC

The UK's HM Revenue & Customs (HMRC) is increasingly targeting the most senior executives as part of its efforts to hold individuals at large businesses to account, with 152 chief financial officers (CFOs) and senior finance executives personally fined for tax accounting failures in the year-end 31 March 2019, says Pinsent Masons.

The number of CFOs and senior finance directors fined has increased 22% over the last year alone, up from 125 in 2017/18, according to figures obtained by the firm. Only 46 individuals were fined five years ago in 2012/13 – the first year in which fines were levied.

The Senior Accounting Officer (SAO) 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.

“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,” said Jason Collins, a tax disputes expert at Pinsent Masons.

“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 finance directors, businesses may need to invest more money in controls in this area,” he said.

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).

Jason Collins said 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, he said. Executives could be fined under the SAO rules if HMRC deems that they did not have adequate controls in place to prevent de facto employees being treated as contractors.

Collins said that HMRC’s new ‘off-payroll working rules’, which will be introduced in the private sector 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 in many cases businesses will also be required to operate PAYE and pay employers' National Insurance contributions.

“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,” he said.

A consultation on the design of the new rules closed last month. There have been calls for the introduction of the new rules to be delayed.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.