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HMRC internal manual

Senior Accounting Officer Guidance

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HM Revenue & Customs
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Senior Accounting Officer main duty: reasonable steps: Example 1 - Shared Service Centre

The examples in SAOG14510 - 14515 illustrate some situations where reasonable steps are taken. The examples illustrate the point but are not exhaustive.

Example 1 - Shared Service Centre

A multinational company sets up an Shared Service Centre (SSC) based in Eastern Europe to handle aspects of its accounting and administration function across Europe.

The Customer Relationship Manager (CRM) or a Mid-sized Business Caseworker finds an inaccuracy in the company’s return for the first year in which this function was in operation amounting to £10,000.

The CRM or Caseworker establishes that to ensure ongoing compliance with UK taxation requirements, the company’s UK tax department was involved in the implementation project. It trained a number of the SSC staff in relevant aspects of UK tax law to ensure that they took appropriate coding decisions. It established links and agreed protocols so that SSC staff could raise or resolve ongoing tax queries with appropriate technical input from the UK tax department. A VAT specialist reviewed the SSC system to check compliance with UK VAT legislation. The tax return review processes were refreshed to ensure key tax sensitive items were reviewed before the tax return was submitted. As this was a completely new process, a review involving a random check of transactions was carried out before the first tax return based on information from the SSC was submitted. The anomaly that caused the inaccuracy was not however identified by this process.

The CRM or Caseworker does not view this as a failure of the main duty because the steps taken in year 1 were reasonable in that they were commensurate, practical steps targeted at the risks the multinational company recognised.

The same error occurs in year 2 which had ended before the CRM or Caseworker had addressed the problem in relation to year 1. However, for year 2 the CRM or Caseworker decides that the Senior Accounting Officer (SAO) did not comply with the main duty. This is because the SAO had been in the position to revisit year 2’s accounts and return before the latter was submitted and make the appropriate adjustments. That they did not do so was in the CRM’s or Caseworker’s opinion as a result of the lack of a process to revisit and consider issues arising in previous periods which would be a ‘reasonable step’. (Processes or arrangements are not simply computerised systems.)

There are no hard and fast rules on the time limits for establishing appropriate tax accounting arrangements once an error is spotted. A CRM or Caseworker would need to make a judgement based on the particular facts. In the example above, the CRM or Caseworker decided that the SAO had had sufficient time to have taken remedial action but had not done so. But if the facts of the case had shown, for example, that the SAO had worked out the remedial steps but had not had enough time to implement them before the second error occurred, the CRM or Caseworker would not have argued that the main duty had been failed.