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HMRC internal manual

Senior Accounting Officer Guidance

HM Revenue & Customs
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Senior Accounting Officer main duty: reasonable steps: making outsourcing arrangements

A company may outsource functions to third parties. Reasonable steps will include assessing whether the third party is suitably

  • competent,
  • qualified, and
  • controlled

to ensure that transactions that have an impact on tax are properly accounted for.

Where an independent third party provides a centralised function for the whole of the market it may be reasonable to assume that the third party is suitably competent and qualified to undertake that activity. For example, for the Lloyd’s insurance market, the calculation and remittance of UK and other premium taxes due on the risks written by the syndicates to which the members belong are provided centrally on behalf of the market.

Where a specialist service is the subject of the outsourcing, the company must take the reasonable steps of assessing as set out in the bullet list above before they use the specialist.

For example, there are specialist firms which analyse the costs of a building into categories of capital, revenue and neither. If the company selects such a firm with care, gives that firm clear instructions and takes a reasonable view of the firm’s report, it will have taken reasonable steps. But if it asks a person who is not a specialist, or a person whose expertise is in a different field, to carry out their review, the company will not have taken reasonable steps.

Outsourcing may also arise in an intra-group situation. The principles that apply here are similar to those set out above and to the situation where responsibilities are delegated. For instance where responsibility for tax is delegated to a tax director. In both situations reasonable steps are likely to include considering whether the other party is suitably competent and qualified to undertake the relevant activity. However, they are not likely to include detailed checking of work once an assessment of suitability and controls has been undertaken.