Finance Directors - personal responsibility

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24 April 2009

Lurking in the 2009 Budget Notes published this week is a proposed measure which will, when it is introduced, require finance directors of companies to take personal responsibility for the adequacy of the company's accounting systems.

Overview

Budget Note 62 explains that the Finance Bill 2009 will require "senior accounting officers" of relevant companies:

  • to take reasonable steps to establish and monitor accounting systems within their companies that are adequate for the purposes of accurate tax reporting; and
  • to certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting or to specify the nature of any inadequacies and confirm that those inadequacies have been notified to the company's auditors.

Companies covered by the new regime will have to notify HMRC of the identity of the senior accounting officer.

Relevant companies will be large companies and large groups of companies. The Budget Note explains that this will cover companies other than those defined as small or medium sized in the Companies Act 2006. Many private equity backed companies will be caught by the new measure.

Timing

We understand that the new obligations will apply to returns due to be made for accounting reference periods beginning on or after the date that Finance Bill 2009 receives Royal Assent. The details of any transitional arrangements will need to be carefully considered when they are published.

Sanctions

The new regime will be supported by penalties chargeable not only on the company but also on the senior accounting officer personally and on the company for a careless or deliberate failure to fulfil the obligations set out above, and for the giving of a carelessly or deliberately incorrect certificate or notification. No information has been published on the level of the penalties.

Comment

Whilst the Government does not expect these requirements to impose significant additional burdens on "responsible" companies or their officers, those asked to sign the certificate may take a different view. Companies and finance directors will need to watch carefully for the detail in the Finance Bill, particularly as to the meaning of "accurate tax reporting".  The requirement for certification by individual officers of the company and the personal responsibility that involves means that companies and those who will be asked to sign these certificates need to consider and plan for the introduction of this new requirement across a wide range of taxes. We assume that the FD will sign and that the certificate will be approved at a board meeting.

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