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HMRC internal manual

Senior Accounting Officer Guidance

Senior Accounting Officer main duty: reasonable steps: Example 5 - reasonable steps that vary across taxes

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

Example 5 - Reasonable steps that vary across taxes

A bank has little liability to VAT in its normal course of business but has opted to tax a building for VAT purposes in order to claim the input tax. The potential value of the VAT to be claimed and declared is significant to the Exchequer but small within the context of the business compared to the current level of CT they pay.

The business has assessed the risks of the VAT being mis-declared or mis-claimed as relatively low due to their very specific and controlled nature. The risks relate to that specific building and by the nature of the normal procedures will be received and processed by one person in the tax department who has a good knowledge of VAT.

By contrast, the business operates very sophisticated remuneration schemes involving share options and internationally mobile employees. The business has assessed the risks to tax being incorrectly declared in respect of these and judged that one of the most likely risks, which will have a significant impact if it materialises, is that individuals’ status, benefits and location are not adequately tracked over time.

They have therefore built capability to identify and track affected individuals into their ERP system. They have also ensured that those making decisions in relation to remuneration are adequately trained and kept up-to-date with changes in regulations. Back record conversion has been carried out for individuals who need to be tracked. The process is audited periodically by the Internal Audit function.

What is appropriate in terms of tax accounting systems is therefore clearly very different across the two taxes, with the remuneration systems presenting the bigger potential risk.

The Customer Compliance Manager (CCM) and Senior Accounting Officer (SAO) have discussed the approach and agreed that these were reasonable steps in ensuring that particular, commensurate attention is paid to the aspect of the accounting arrangements of the bank that contain the higher risk, while ensuring that appropriate attention is also given to arrangements that present lower risks. (Note that for a Mid-sized Business customer such a discussion may not have taken place with a Caseworker.)