top of page

E1: Senior accounting officer regime

Reasonable steps to establish and maintain appropriate tax accounting arrangements

“The test in paragraph 1 is whether the appellant took “reasonable steps” to ensure that ICE established and maintained appropriate tax accounting arrangements, and in particular whether he took reasonable steps to monitor those arrangements and identify any respects in which they were not appropriate: see paragraph 1(1) and 1(2) of Schedule 46 [FA 2009].” (Thathiah v. HMRC [2017] UKFTT 601 (TC), §65, Judge Falk).

Not an absolute duty


“The test in paragraph 1 is not an absolute one. It is not the case that the existence of even material or repeated errors necessarily signals that the main duty has been breached. Such errors may well indicate that “appropriate tax accounting arrangements” do not exist, because the definition of that concept in paragraph 14 refers to arrangements “that enable the company’s relevant liabilities to be calculated accurately in all material respects”. If tax accounting arrangements do not, in fact, enable that to happen for whatever reason, then those arrangements are not appropriate. However, for a breach of the main duty to be established HMRC must show that there has been a failure to take “reasonable steps” to ensure that the company establishes and maintains appropriate tax arrangements. This is not an absolute duty to ensure that those arrangements exist.” (Thathiah v. HMRC [2017] UKFTT 601 (TC), §66, Judge Falk).

Reasonable steps is an objective test, but depends on T’s circumstances

“The question of whether the appellant took “reasonable steps” is clearly an objective one, which in my view must be determined by reference to all the circumstances. As indicated in SAOG14320 there is no “one size fits all”. The matters to take into account will include the size, complexity and nature of the business, but in my view must also include matters more closely related to the role of the individual in question, such as the resources available to that individual and his or her authority to bring about any required change (albeit taking account of the fact that, under paragraph 16 of Schedule 46, the SAO will by definition have a senior role in the business)… [I]n my view there is a significant distinction between a company with a small finance team that is just over the qualifying company threshold and (say) a major financial institution with a large tax department, where the SAO may well have a more significant degree of control over resources, and systems and controls can be expected to be sophisticated.” (Thathiah v. HMRC [2017] UKFTT 601 (TC), §§68…76(3), Judge Falk).

Absence of selective testing not a failure to take reasonable care on particular facts

“The absence of selective testing can certainly lead to errors becoming embedded, and so in principle such testing must be desirable. But the question here is whether selective testing was a reasonable step in the particular circumstances of this case. Taking all the evidence into account I am not satisfied that HMRC have established a breach of the main duty in failing to ensure selective testing…Taking the results of KPMG’s work as a starting point and undertaking variance testing from there, combined with checks of major expenses, a specific procedure for new items and testing by KPMG as part of their audit work, does not appear to me to amount to a failure to take reasonable steps for a business that, so far as I can tell, was of a very different scale to (say) a major bank, and in circumstances where limited resources were available.” (Thathiah v. HMRC [2017] UKFTT 601 (TC), §§72…73, Judge Falk).

Reasonable steps to establish and maintain appropriate tax accounting arrangements
bottom of page