HMRC update SAO manuals in light of Castlelaw FTT decision.
HMRC have made some changes to their Senior Accounting Officer (SAO) manuals to relax the way that they apply the SAO regime, largely in response to dicta in Castlelaw (No628) Ltd & Irene Douglas v HMRC (Castlelaw). In Castlelaw, the First-tier Tribunal (FTT) highlighted wider factors that HMRC should have taken into account in deciding whether penalties should be charged as a result of a failure to include dormant companies on the SAO certificate.
The factors which the FTT highlighted were:
The changes in the guidance introduce a number of amendments to previous practice:
Where a failure occurs, HMRC will exercise discretion in deciding whether a penalty should be charged, taking account of factors such as the nature of the failure, the level of risk, whether the failure is symptomatic of underlying weaknesses in the tax accounting arrangements and the corporate's overall compliance. HMRC guidance makes it clear that this is different from reasonable excuse.
This point is essentially a consequence of the approach set out above but, given that non-compliance in relation to dormant companies has historically been one of the main, if not the main, reason for the imposition of penalties, it is worthy of separate comment. SAOG18850 now includes the following statement:
"We will not normally seek to assess penalties where a group of companies or an SAO omitted details of dormant companies where a risk assessment indicates minimal requirement for tax accounting arrangements."
Whilst a positive step, HMRC define a dormant company in this context, as having no profits or income and no assets capable of producing profits, income or gains. The most significant consequence of the underlined extract is that if a company is inactive, but it holds shares in another company, it will not be considered dormant for these purposes. HMRC have provided several examples.
There have been a number of relaxations in relation to the format in which the certificate/notification can be submitted:
The effect of the above changes should be to reduce the number of penalties for inconsequential offences. An increased emphasis upon compliance with the main duty of the SAO to establish and maintain appropriate tax accounting arrangements and the basis upon which certificates are submitted can also be expected. In this respect, the low risk indicators set out in HMRC’s Business Risk Review guidance provide a clear indication of what these arrangements should include.
If you would like to hear more about how changes to HMRC’s SAO guidance may affect your business, please speak to your usual contact.
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