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HM Revenue & Customs has fined 115 senior finance directors personally in the latest financial year, a 150 per cent rise on the number of penalties issued five years ago.
The crackdown on the chief financial officers of Britain’s largest companies has alarmed accounting professionals who fear HMRC has adopted a “trigger happy” approach, said several lawyers focused on this area.
All the finance directors came from companies with annual revenues of more than £200m or assets of more than £2bn.
The rise in penalties follows the introduction of the Senior Accounting Officer regime in 2009 that enabled HMRC to fine individuals in senior finance roles up to £5,000 for failing to ensure “appropriate tax accounting arrangements”.
The tax authority adopted a light-touch approach initially but has used increasingly aggressive tactics during the past three years, said Jason Collins, partner at Pinsent Masons.
“HMRC is going after the most senior people it can, without exceptions. Putting finance directors in the line of fire is a definite escalation of HMRC’s tactics,” he said. “Given the scale and complexity of the money flows in large businesses, simple errors in the finance department can result in misreporting and fines.”
Individuals in the financial services and retail sectors received the highest number of fines in the 12 months to the end of March, with 16 penalties issued in each. The energy sector saw the largest increase in individuals fined, from nine in 2015/16 to 14.
David Harkness, tax partner at Clifford Chance, the law firm, said pressure from HMRC on finance directors and the growing focus on personal liability was worrying clients. “It is almost inevitable that sometimes errors will occur and although the legislation provides a defence where there is a ‘reasonable excuse’, there is a worry that HMRC will not accept that excuses are reasonable,” he said.
“It would be helpful if HMRC could be more open about how the SAO regime is working, and why fines are being awarded. It is an area of concern to clients.”
Although the total number of fines issued by HMRC fell year on year from 181 in 2015/16, concern about its approach has intensified after it lost the first tribunal decision relating to the imposition of these penalties in August.
Kreeson Thathiah, former finance director of privately owned Lenlyn Group, which includes the International Currency Exchange, successfully appealed against two £5,000 fines issued by HMRC for his oversight of tax accounting practices in 2011-13.
The tribunal criticised HMRC’s handling of the case, in particular for failing to draw a distinction between compliance systems at small and large companies.
“Effectively it was assumed that any company [caught by the SAO regime] should be held to the same standard. In my view there is a significant distinction between a company with a small finance team that is just over the qualifying company threshold and a major financial institution with a large tax department,” said the judge overseeing the case.
Mark Stapleton, a partner at Dechert, the law firm, said his “impression from the judgment is that perhaps HMRC were too ‘trigger happy’ in levying the penalties”. “Clearly it would be a matter of concern for any organisation or individual that receives a fine in terms of reputational damage,” he said.
HMRC did not respond to a request for comment.