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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 4

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 4 - building expenditure

Company D builds a hotel with the intention of operating it as part of their ongoing hotel ownership and management business.

The business employs a trained specialist to analyse the expenditure, code it appropriately and provide information and analysis for the capital allowances computation. The tax department checks this information.

Due to the sums of money involved, the agreed policy is that items costing less than a set amount are not reviewed in detail. Instead the trained specialist makes an estimate, based on past experience and an appropriate sampling exercise, and uses it for coding. The company has discussed and agreed the basis of the estimation with the Customer Compliance Manager (CCM) or a Mid-sized Business Caseworker.

We would not regard the incorrect treatment of a fixed asset below the set amount for the purposes of the capital allowances claim as a shortcoming because the system in place would allow a reasonable estimation of accuracy in line with the circumstances of the business. Therefore we would be likely to take the view that there are appropriate tax accounting arrangements in place.

However, if there was no appropriately trained and experienced person involved in the consideration of the purchase and no system of review of reasonableness of the outcome of the estimation technique used to determine treatment of items under the set amount we would be likely to view this as a shortcoming in the tax accounting arrangements. An example of how this shortcoming might be expressed on a qualified certificate is at SAOG15450.