It makes sense for all organisations to adopt the new rules for senior accounting officers covering proper tax reporting systems even though only the largest are currently affected by them, says Stuart Hibberd. It’s sensible best practice.
Where employers fail in their employment tax compliance it is usually outside the payroll; the expenses that are taxable and have escaped the finance department’s radar, the individual who has been hired without the knowledge of the human resources team and should have been treated as an employee. In many cases, the errors occur because systems are not in place to prevent them. With this in mind, it is worth considering the new rules for senior accounting officers (SAOs) of large companies that require proper accounting systems for reporting taxes and duties including those covering employment taxes (excluding national insurance contributions). This article explains the SAO requirements and notes how the best practices can be adopted by all organisations, with special emphasis on expenses systems.
Effective accounting systems
Legislation has just been enacted that requires SAOs to certify annually the adequacy of the company’s accounting systems for reporting tax and duties to HMRC. Whilst this legislation covers approximately only the largest 2,000 companies in the UK, all organisations may wish to take note of the standards that are being set, as indicated by the accompanying HMRC guidance notes.
The new provisions apply to a number of taxes and duties, including amounts accounted for under the PAYE regulations. The legislation requires the SAO to confirm that the accounting systems, ‘enable the company’s relevant liabilities to be calculated accurately in all material respects.’ Would you be confident to say that this applied to your organisation?
It is worth taking a closer look at your systems and checking how they measure up when it comes to dealing with PAYE. This covers:
- Bringing forward correct opening balances. Is the payroll data correct – given that it may have been rolled forward or input a number of years ago?
- Outsourcing. Have you taken steps to ensure that any third party assisting you is suitably competent and qualified?
- Accuracy, monitoring and reviewing. Is the information for your returns gathered in a systematic way? Do the persons responsible have the correct level of training and understanding of the allied tax issues? Do you both periodically and critically review you records? HMRC guidance asks whether reasonable steps are being taken to ensure that risks associated with tax compliance are taken to ensure that returns can be prepared with a reasonable amount of confidence.
Accurate records
HMRC guidance gives as an example a company where employees travel regularly on business. Expenses are claimed electronically. Each month a sample of claims is checked against receipts and the details of the journeys are also reviewed. Errors are corrected. HMRC would regard this as a robust system. However, given that a weakness has been identified (i.e. errors are occurring), HMRC may reconsider the position in respect of future periods if the company has not implemented additional training or enhanced controls to prevent future failures.
In a second example a company discovers a small number of miscoding errors. Provided the accounting arrangements and systems are appropriate for the size of the organisation HMRC would not argue that the SAO had failed in his or her duties and would not be liable to a penalty. HMRC recognise that mistakes do happen in large businesses. However, once again, HMRC would want to see evidence that guidance for those making the entries was up to date and that checks and controls are in place to ensure the accuracy of the systems.
Employers outside the SAO regime will not be reviewed by HMRC under these criteria. However if the rate of errors is unacceptable, proportionate to the size of organisation, best practice would be to amend the systems in place.
Expenses systems
With regard to expenses, a bespoke system should be able to meet all your internal business requirements and at the same time provide you with accurate information to produce P11D returns, PAYE settlement agreement figures, control mileage payments, and correctly classify entertainment and personal incidental expenses, and deal with recoverable VAT.
Levels of expenses
The main development in the expenses arena in 2009 has been HMRC’s announcement of nationally acceptable daily UK subsistence rates1. Until earlier this year we had the anomalous position of there being HMRC approved rates for an employee’s lunch in Innsbruck but not in Inveraray, as where an employee travels overseas, HMRC had adopted the Foreign and Commonwealth office rates as being acceptable. Until April 2009, employers could not simply use set rates in the UK unless they had been agreed under a dispensation after undertaking a sampling exercise.
From 6 April 2009, for UK travel employers can either pay actual costs, supported by receipts, or the following scale rates by including them in their dispensation:
| Meal(s) |
Rate (up to)
|
| Breakfast rate |
£5
|
| One meal (5 hour) rate |
£5
|
| Two meal (10 hour) rate |
£10
|
| Late evening meal rate |
£15
|
Overnight rates in the UK will continue to have to be agreed with HMRC.
There are certain rules attached to the payment of these rates. For example, the breakfast rate can be claimed only if the employee leaves home earlier than usual, and before 6am, and the breakfast costs are incurred for a meal taken away from home. As part of these changes, HMRC has said that it will no longer sanction staying with friends/relatives allowances. Existing dispensations will be phased out when they come up for renewal2.
HMRC also says that payments must be limited to three meal rates in a 24 hour period. The breakfast and late evening meals rates are for use in exceptional circumstances and not where there is regular and habitual pattern of late or early working. This is an area where systems and guidance may require updating, bearing in mind the controls that may be necessary to demonstrate compliance with the SAO rules.
No place for ostriches
HMRC has announced that it will operate a ‘lighter touch’ in respect of the SAO rules for the first year. For affected companies this offers an ideal opportunity to bring systems up to scratch. Other companies coming into the regime several years down the line, or those who have thought they have survived adopting an ‘ostrich’ defence, will not benefit from this lighter touch. Hence it is advisable for all companies to take note of these developments and ensure that they are able to demonstrate the robustness of the controls within their systems, and to benefit from improved compliance.
1www.gtuk.com
2www.hmrc.gov.uk/briefs/income-tax/brief2409.htm