Changes to HMRC’s application of the SAO regime

Changes to HMRC’s application of the SAO regime

HMRC update SAO manuals in light of Castlelaw FTT decision.

Peter Honeywell

Director, Head of Tax Governance for National Markets

KPMG in the UK


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:

  • “HMRC's Business Risk Review (BRR) gave an overall impression of a group that has 'proper regard for its compliance obligations and has in place proper measures and personnel to deliver'.
  • HMRC's assessment of the group's behavioural risk was 'Low'.
  • The group paid the right amounts of tax at the right time.
  • The group's organisational structure included a substantial number of dormant entities that were either holding companies or special purpose vehicles.
  • The failures in question related to two dormant companies (including Castlelaw) which had no 'accounting footprint' in the group – that is, they had no liabilities to any of the taxes included in the SAO regime (see SAOG10300), thus did not need tax accounting arrangements.
  • The group participated in a collaborative working arrangement with HMRC.”

The changes in the guidance introduce a number of amendments to previous practice:

Late certificates

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.

Dormant companies

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 SAO can now provide a combined notification and certificate – specimen wording for an unqualified notification/certificate is included in HMRC's updated guidance;
  • The certificate can now be incorporated within an email, provided that the email is sent by the SAO personally (to be validated through HMRC's email protocol) and it contains their electronic signature (see HMRC's updated guidance). This is a positive development but, in most cases, will be of limited value in relation to any last-minute submissions, unless the SAO personally is already covered by the email protocol;
  • There has been a relaxation in HMRC's attitude to the use of "to the best of my knowledge and belief" in that this will no longer be regarded as effectively qualifying an otherwise unqualified certificate (see HMRC's guidance); and
  • SAOG13100 opens up the possibility that HMRC will agree to extend the notification deadline in limited circumstances, however no examples are provided to indicate what these circumstances may be.

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.

For further information please contact :

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