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HMRC internal manual

Senior Accounting Officer Guidance

Senior Accounting Officer main duty: appropriate tax accounting arrangements: arrangements and calculating tax liabilities - Example 1

The examples in SAOG14350-3 illustrate some situations where appropriate tax accounting arrangements allow tax liabilities to be calculated accurately in all material respects. These examples also include ‘alternative’ scenarios where the tax accounting arrangements are not appropriate because they do not, or may not, allow relevant liabilities to be calculated accurately in all material respects. The examples illustrate the point but are not exhaustive.

Example 1 - travel expenses

Company A employs a large number of staff who regularly travel for business purposes. The accounting system allows members of staff to claim their expenses electronically. Each month the company checks a sample of expense claims back to the original receipts and journey details for accuracy. It corrects any errors found and follows up the reason with the employee. If the error might occur for other employees, it issues guidance to all employees to reduce the risk of the errors being made by others and, where it is practical, amends its electronic claims system to prevent the error re-occurring.

Where it is not practical to amend the accounting system to prevent the error re-occurring, it programmes the system to flag up any claims that contain the feature that led to the error for checking. It reviews total expenditure against historic spend and checks for large and unusual items quarterly.

When the company discovers errors from the sample checks it corrects them and issues further guidance to its staff, amends its system, discusses this action with HMRC’s Customer Compliance Manager (CCM) or Mid-sized Business Caseworker and makes an appropriate adjustment in the tax computation.

Within the context of this company the system is clearly robust. It contains reasonable checks and levels of monitoring to ensure that expense claims are dealt with appropriately. Once an error is discovered, it takes steps to ensure the errors do not occur in the future. The system appears to enable the company’s relevant liabilities to be calculated accurately in all material respects, so we are likely to regard it as an ‘appropriate tax accounting arrangement’.

However if the company had no arrangements in place to identify why these errors occurred and therefore to prevent them re-occurring, we are likely to take the view that this represents a shortcoming in the tax accounting arrangements. An example of how this shortcoming might be expressed on a qualified certificate is provided at SAOG15450.