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HMRC internal manual

Senior Accounting Officer Guidance

Senior Accounting Officer main duty: reasonable steps: Example 2 - Retailer and VAT codes

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

Example 2 - Retailer and VAT codes

A large take-away food retailer supplies standard and zero rated goods. It has a high turnover of casual staff in multiple locations. The inherent risk of miscoding sales for VAT purposes is therefore extremely high.

The business has decided that in order to mitigate this risk to appropriate levels they should minimise decision-making on VAT rates at the point of sale. It has invested in an off-the-shelf electronic till system where the only decision members of staff have to take is to identify the product. The standing data files that attribute the relevant VAT rate to each product are populated by people who have a good knowledge of VAT liability and these files are checked periodically by the tax department.

As part of its business expansion the retailer has recently taken over another smaller chain of food outlets. In this chain counter staff, who are largely casual appointees, have to choose whether to standard or zero rate a particular sale. The Senior Accounting Officer (SAO) of the new parent has ensured that their department has been involved in the planning process for the takeover and has recognised that there are significant risks of mis-description in the new outlets. Due to financial constraints, the parent company cannot implement their tried and tested system across the new outlets until the next financial year. So the SAO has commissioned a risk assessment of the new outlets and identified some short term actions which can be taken to minimise those risks which are most likely to occur and are likely to have the greatest impact on accounting for the right amount of VAT. They have also developed a plan for implementing the new system across the new outlets once the finance is available.

The SAO and Customer Compliance Manager (CCM) have discussed the approach and both were satisfied that reasonable steps have been taken to ensure the tax accounting arrangements are appropriate for the year. (Note that for a Mid-sized Business customer such a discussion may not have taken place with a Caseworker.)

However, in the second year the CCM or Caseworker discovers that there has been a £50,000 under-declaration of VAT due to a problem to do with the chain that was taken over. On investigation, the CCM or Caseworker learns that the SAO has allowed the short term actions to lapse and has failed to implement the planned new system in the second year. The SAO cannot provide a good reason for the deterioration or explain why the plan for the new system has not been carried out. The CCM or Caseworker decides that there has been a failure to meet the main duty in the second year because the SAO has not addressed the risk identified the year before.