‘Get tough’ tax policy poses new problems for companies | 30 April 09

A NEW ‘get tough’ approach to tax enforcement is set to create serious problems for companies, according to law firm Ward Hadaway.

Measures introduced in the Budget will make senior finance officers at larger businesses personally liable for companies’ tax affairs, with penalties of up to £5,000 levied on individuals for failing to meet the new obligations.

Tax experts at Ward Hadaway say the new rules, combined with other Budget plans to ‘name and shame’ people who evade tax of over £25,000, signal a much more aggressive approach from HM Revenue & Customs and could cause a major headache for the North’s biggest businesses.

Paul Christian, partner and head of tax at Ward Hadaway, said: “In recent years, HMRC has taken a more conciliatory approach towards corporate tax matters, but these changes demonstrate a definite ‘get tough’ attitude.

“Whether this has been prompted by the Government’s need to bolster tax revenues is unclear, but what this does spell is a real shift in policy.”

Under the new regime, senior accounting officers – probably a company’s finance director – of larger companies will be required to take personal responsibility to ensure that accounting systems are adequate for tax reporting purposes.

This senior figure will have to certify annually to HMRC that the systems are up to scratch and must flag up any problems in the systems and confirm these have been reported to auditors.

Failure to meet these obligations will see a fine of up to £5,000 directly imposed on the individual.

Paul Christian said: “This policy has wide-ranging implications for companies and senior finance people who work in them.

“It is likely to mean significant changes in internal accounting procedures and the introduction of new sets of checks and risk assessments, all of which will inevitably add to companies’ costs.

“Some finance directors may well feel uncomfortable with being held personally responsible for accounting and tax systems and could demand extra pay to reflect this additional burden.”

The measures are also likely to affect a significant number of companies. Initial indications show that businesses with at least two out of the following three criteria:

  • turnover of more than £22.8m
  • balance sheet total of more than £11.4m
  •  more than 250 employees

will be covered by the new regime.

Paul Christian said: “This covers many of the North’s Top 250 companies and is by no means restricted to large multi-national corporations.

“It also means that businesses which experience rapid growth will have to think quickly about how they are going to have to adapt to the new regime.”

The obligations will apply to tax returns made for all accounting periods once the Finance Bill 2009 receives Royal Assent, expected by 21 July this year.

HMRC’s new ‘name and shame’ policy for tax defaulters is also likely to pose problems for business people, in particular entrepreneurs who own their own companies.

Paul Christian said: “The proposal says those who ‘deliberately’ default on tax payments of more than £25,000 will be named on a defaulters list by HMRC.

“Not only is this a relatively low level for tax payments, but also the definition of ‘deliberate’ default depends only on whether HMRC believe a taxpayer has taken reasonable care.

“Tax compliance is complex and notoriously difficult for non-tax experts to navigate through so people could end up being named and shamed through no real fault of their own.

“One thing is for certain – business people will now need to tread even more carefully when it comes to tax matters.”

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