The Finance Act 2009 (ss93 and 94 and Sch46) introduced a new requirement for the Senior Accounting Officers (SAO) of large UK-based companies. SAOs of qualifying companies must certify annually to HMRC, for the previous financial year, that the tax accounting arrangements and controls are of the business are appropriate, take adequate account of the risks, and are operating satisfactorily.

The SAO reporting requirements apply only to the UK operations of the businesses concerned. SAO reporting encompasses all operations where there is payment of, or reporting to, HMRC related to tax including inter alia customs duties, excise duties, VAT and income taxes (including specific reporting schemes such as the Construction Industry Scheme (CIS)).

In order to be a qualifying company, the company must satisfy certain conditions:

  • be a company incorporated in the UK in accordance with the Companies Act 2006 for the financial year; and
  • either alone or when its results are aggregated with other UK companies in the same group, have:
    • a turnover of more than £200 million, and/or
    • a relevant balance sheet total of more than £2 billion

for the preceding financial year.

A qualifying company clearly might be a subsidiary of a non-UK business, or may itself have non-UK subsidiaries, but if the UK operations of the business satisfy the definition of a qualifying company, then the business is required to nominate an SAO and inform HMRC who that person is, and the SAO must complete the SAO certificate each year.

A group of companies (as defined by the Act) may have one or more SAOs for different entities within the group. The SAO certificate may relate to the whole group or to individual businesses within a group. However, when a company (or group) is a qualifying company, it must have a designated SAO whose name is provided to HMRC. A company may not have more than one designated SAO at the same time.

The SAO is the director or officer who in the company's reasonable opinion has overall responsibility for the company's financial accounting arrangements. The SAO may be any person within the company who has sufficient information and authority to fulfil their responsibilities. The company must make a reasonable decision who best fits this description. In most cases, the appropriate person to be designated as the SAO will be clear from the company's governance arrangements. SAO compliance cannot be delegated to any external agency.

Under the Act, the main duty of the SAO is to take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements. Secondly, the SAO must provide to HMRC a certificate for the company (or companies), for each financial year. The certificate must state whether the company had appropriate tax accounting arrangements throughout the financial year and, if it did not, give an explanation of the respects in which the accounting arrangements of the company were not appropriate tax accounting arrangements. In particular, the SAO must determine and certify that the amount of tax due has been calculated correctly in œall material respects.

Failure to provide a certificate, and failure to take reasonable steps to ensure that the certificate is accurate, are subject to separate civil penalties under the Act. The penalty for non-compliance is £5,000 per infringement, for which the SAO is personally liable. A penalty may also be levied on the company if it fails to notify HMRC of the name or names of its SAO(s).

There is a risk for large companies that non-compliance with SAO reporting requirements will damage their existing relations with HMRC, leading potentially to enhanced scrutiny of their interactions with HMRC. Furthermore, recent corporate failures in the oil and motor industry sectors should highlight the responsibility of Boards not only to their shareholders but also to the consumer and with regard to environmental health.

In light of increasing pressure from the UK government and its agencies to provide assurance that the company's tax obligations are effectively managed, the controls established by the SAO to monitor and assure tax accounting compliance should complement the company's Board business management processes.

SAO Duties and Controls - general remarks


The main duty of the SAO is to take reasonable steps to ensure that the business establishes and maintains appropriate tax accounting arrangements.

This means, in particular, that the SAO must take reasonable steps to:

  • Monitor the accounting arrangements of the company; and
  • Identify any respects in which those arrangements are not appropriate tax accounting arrangements.


Appropriate tax accounting arrangements must allow the company's tax liabilities to be calculated accurately in all material respects. For customs duties, this includes assuring that the value, tariff classification and origin status, and any other certifications which impact on the calculation of the correct duty liability, which are determined and declared to HMRC in relation to imported goods, are correct and are declared accurately. If the company's monitoring processes or HMRC enquiries show that the tax liability has not been calculated accurately in all material respects, or that the business is persistently unable to make its returns on time, this may signal a deficiency in the company's tax accounting arrangements.

It is not sufficient that the business merely has tax accounting arrangements. The SAO must take reasonable steps to ensure that these arrangements are appropriate. This requires consideration of the care and accuracy with which these arrangements are designed, used and monitored.

In regard to the appropriateness of the accounting arrangements, it will be helpful to show that: there are procedures in place to regularly monitor and report on the major areas of tax compliance; there is consideration of specific risk factors; and there is a review/audit process which is completed regularly (at least annually) and, when complete, the results are reported to the SAO. The person carrying out SAO control review/audit reporting should not be the same person who is involved in the compliance activity.

The SAO review/audit process must be devised and completed with the activity engagement and supervision of the SAO. It is his personal responsibility and if there is a failure of accounting, he will be held accountable.

The SAO review/audit process should be flexible and sensitive to changes in risks. This means that the process must consider changes to the business operations, its operating systems (e.g. ERP) the legal and regulatory framework, and particular events, and then appropriately weight the risk which these events or changes pose to the tax accounting compliance of the business. The SAO compliance review process should be capable of modification (e.g. the frequency of review or specific additional checks), when and where necessary, to ensure that the business correctly calculates and accounts for its tax liabilities

Eyes Ltd Review


4 Eyes Ltd carries out reviews of the SAO compliance regime pertaining to customs duties, excise duties and VAT. We assess the quality and fitness for purpose of the processes in place, how the company gauges risk, and the effectiveness of the monitoring processes. Each business unit, site or functionally distinct entity is considered on its own merits. This will usually require visits t4o each location, reviews of the internal review/audit processes, and assessment of the company's business systems.

If you would like to commission a review of your company's SAO compliance regime, or to discuss the issues raised in this article 4 Eyes Ltd would be pleased to discuss your requirements.