UK: Senior Accounting Officer Rules - Sign-Off, Sign-On Or Sign-Out?

Last Updated: 15 October 2009
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

When the UK Chancellor, Alistair Darling announced the 2009 Budget on 22 April most commentators were taken by surprise by the inclusion of new rules requiring company officers to personally sign-off the tax accounting policies and processes of their organisation. The rules as enacted differ considerably from the original proposals. This has resulted in confusion, as well as the natural uncertainty arising from such a novel and far-reaching measure.

In this article we will examine the impact of these measures for employers, and especially for those employers with an internationally mobile population. We will also explain how the evolved rules should be approached, what companies need to consider now that the new regime is up and running, and how individuals responsible for payroll, employment taxes and mobility will have a greater level of accountability to the Senior Accounting Officer (SAO) as a result of this novel regime.


The 2009 Finance Act was given Royal Assent on 21 July 2009, heralding the introduction for large groups of a requirement for a nominated Senior Accounting Officer (SAO) to provide annual assurance to HM Revenue and Customs in the UK that appropriate tax accounting policies and processes are in place and maintained. These provisions are comparable to moves by regulatory authorities elsewhere to focus attention on risk and processes, not least the Sarbanes-Oxley Act in the United States. For companies with a 31 July year-end these rules took effect from 1 August 2009, and each month more companies will come into scope as their financial year begins.

Taking Reasonable Steps

The rules apply to UK incorporated companies, including the UK operations (and foreign branches) of large UK-parented groups and foreign multinationals, to the extent they have significant subsidiaries in the UK. They have effect for financial years beginning on or after 21 July 2009. In this context large companies/groups are those with turnover of more than £200m or gross assets of more than £2bn. The rules place a personal duty on the SAO of qualifying companies to:

  • Take reasonable steps to ensure that the company maintains and establishes appropriate tax accounting arrangements; and
  • Provide an annual certification to HMRC stating that appropriate arrangements were in place throughout the period or, if not, identifying any deficiencies.

A group SAO who fails to comply with these requirements will suffer a personal penalty of £5,000 in relation to each duty for each year.

HMRC guidance says that an SAO who begins a review of the appropriateness of tax accounting arrangements during the first financial year following 21 July 2009 will be treated as taking reasonable steps and would not be penalised for any failures in that first year.

New Boundaries?

The requirements are unlike anything seen before in UK tax law: they impose personal duties and potentially penalties on individual officers. HMRC have commented that they consider most large groups to be compliant, but there are a small minority who are not, and the aim of the new rules is to encourage these to "up their game". But although ministers and senior HMRC officials have said that they do not expect the requirements to create additional work for compliant businesses, we expect SAOs to seek assurance from relevant individuals within their organisation that appropriate controls are in place. There will be a more rigorous approach to issues surrounding compensation, benefits and mobility, which are mostly brought into scope through PAYE.

The rationale for this measure is to ensure that senior management understand the need to have systems and processes in place that can calculate and file accurate tax liabilities. This is an area where HMRC perceived an "accountability gap" previously.

The rules are clearly aimed at CFOs in the expectation that they will arrange for more effective supervision, where required, of existing owners of employment tax issues in tax and HR departments. While the financial penalties may not be severe, in a survey by Deloitte of CFOs, 90% said that the reputational consequences of the penalty would be taken very seriously.

Employment Tax And Mobility Implications

The legislation specifically covers calculation of tax under the PAYE regulations but there are many elements of employer compliance which will contribute to accurate PAYE. The areas which are likely to cause concern for employers include expenses, benefits, bonuses, short-term business travellers, international secondees, PAYE Settlement Agreements, entertaining, equity, terminations and travel, amongst others. Companies with internationally mobile populations or complex travel and expense policies which are not fully integrated into their systems are likely to find the requirements particularly challenging.

A Deloitte survey of businesses in May 2009 found that PAYE/NIC and VAT rather than corporation tax were the two most concerning areas. (HMRC have since clarified that neither NIC nor the Construction Industry Scheme are subject to the new measure).

HMRC have published guidance, including examples which specifically outline how weaknesses in a travel expense claim process, or in differentiating between allowable and taxable expenses, would constitute failures if not addressed; however, these examples are by no means comprehensive, and the legislation is based on principles rather than attempting to prescribe in detail what is acceptable. HMRC guidance makes clear that where the tax accounting gives the right result at the end of the year, the company would not be regarded as having had inappropriate tax accounting arrangements during the year.

What Are The Risk Areas?

Because the rules cover PAYE, employment and mobility issues fall clearly within their scope. The adequacy of controls and the proper identification of risk issues will come under greater scrutiny from the SAO. The activity undertaken by the SAO to ensure compliance will increasingly impact those responsible for expatriate and employment tax within the business.

It is therefore important to understand key areas of risk and where there are potential areas that might result in the SAO not being able to certify that the company maintains appropriate tax accounting arrangements.

From an employer tax and mobility perspective, some key questions to consider are:

  • Do you have procedures in place to ensure that the UK element of global compensation is correctly reported to HMRC, including apportionment of equity, pension contributions, bonuses, allowances and expenses?
  • Do you identify, track and report all people coming to the UK for more than 30 days and where appropriate include them on either a short term business visitor report or on payroll, without compromising immigration status?
  • Do you have a documented tax strategy for managing employer tax compliance?
  • Do you have documentation in place that sets out all of the employment tax requirements for the business and which also clearly requires assignees to take their share of responsibility; if so, is this regularly reviewed?
  • Do you have a process for identifying and tracking tax risks relating to the compliance process?
  • How many manual adjustments are required from the point transactions are initially recorded into the accounting system to the point of reporting these to HMRC?

What Now?

If your group is within the rules it is important to consider whether you are clear about the start date, whether there are arrangements in place across employment taxes and mobility, and whether there is a clear line of reporting to the SAO. Some of the questions you should therefore be asking are:

  • Is your group within the rules, and from what date? If your company's next year end is before 31 March 2010 will PAYE be correctly calculated for the whole of 2009/10 by April 2010
  • Who is the relevant SAO?
  • What is my role and am I able to provide the appropriate sign-off to the SAO?
  • Do current processes and controls give sufficient assurance to the SAO for the required declarations, and if not, how will arrangements be critiqued and improved?
  • Should the group be having early discussions with HMRC on its interpretation of the rules and its response to deficiencies, if any?
  • Given the focus on tax processes and systems, what opportunities might there be to generate cash tax benefits for the business at the same time as ensuring compliance for SAO purposes?

To assist companies in highlighting the specific areas where there is a likelihood of non-compliance or a particularly significant risk, we would recommend that a thorough review of employment tax reporting is undertaken. This approach can be utilised by companies as the basis for an initial overview of their risk profile by taking into consideration the likelihood and significance of risks; an approach which might constitute taking 'reasonable steps' in the first year.

Once an assessment has been carried out then strategies, processes and systems should be designed and maintained in order to ensure that employers have visibility, control and accuracy across their organisation.

Critiquing internal arrangements, systems and processes, putting remediation strategies in place, and entering into early discussions with HMRC will prove beneficial. Activity undertaken to improve processes and systems should result in streamlined, tax efficient systems with increased internal recognition of the risk and control issues associated with employment taxes and mobility.


These rules represent a sea-change in the relationship between large employers and HMRC. SAOs will need to be aware of risk areas in order to sign-off each year, and they are likely to ask for assurance from those responsible for mobility, payroll, benefits and compensation. As a result it will become more important for companies to have processes which are clearly defined and easy to follow, with a clear audit trail. Where issues are identified a remediation strategy needs to be pursued in order to satisfy both HMRC and the SAO that reasonable steps are being taken. Expatriates clearly add complexity to payroll accounting under any circumstances but unfortunately they are still within the scope of the arrangements. As a result every care should be taken to make sure that due consideration is given to issues such as equity arrangements, short term travellers, global compensation management and basic policies where expatriates are involved.

Some companies may find that this provides an opportunity to implement improved processes and tax efficient policies but in the end much will depend on the approach of individual SAOs and their counterparts at HMRC.

Deloitte LLP can assist with all areas impacted by expatriate and mobility including tax, social security and immigration. Our Global Employer Services group provides innovative solutions which deliver real value to our clients through the integration of practical experience, industry knowledge, technical expertise and cutting edge technology. We have set up a dedicated website to address all the issues surrounding the SAO legislation and to keep clients up to date with developments, best practice, our point of view and our diagnostic tools. The website can be accessed at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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