With IR35 Looming, HMRC Continues to Target CFOs

With IR35 right around the corner, HMRC is continuing to target CFOs and FDs under the Senior Accounting Officer (SAO) regime. Official figures are currently showing that this crackdown has led to a 22% increase in the number of senior finance executive who are being fined for tax accounting failures. 

The SAO guidelines were introduced back in 2009 and it allows HMRC to issue a penalty of £5,000 to those who have failed to correctly account for a company’s income and expenses. These rules apply to companies in the UK that have a turnover of £200 million or more, or a relevant balance sheet that totals more than £2 billion for the following financial year. Any company that qualifies must assign someone as an individual director or officer, to act as an SAO. This is usually the FD or CFO and the tax accounting arrangements for the company fall to them.

For the first three years of the SAO regime being introduced HMRC kept a low profile and didn’t impose any fines, but this eventually changed. Since 2012, HMRC has taken a much harder stance and the number of fines imposed has increased every year. Over the last year alone the number of CFOs and senior FDs fined has increased by 22%, from 125 to 152. Back in 2012/13, only five people were fined. 

The HMRC has been criticised for its enforcement of the SAO guidelines already. In the first tribunal held about SAO penalties, the judge commented that the regime shouldn’t be applied in the same way for everyone. He commented that there should be a separation between businesses that just qualify and much larger companies, such as those who have access to tax departments and professional systems.

However, HMRC has insisted that the increased number of fines being imposed has nothing to do with its recent crackdown. Instead, HMRC argues that it’s just a case of the law being followed. Jason Collins from Pinsent Masons’ states that it’s not just the SAO regime that has had more active enforcement, but all areas. Collins argues that “HMRC is definitely spending more time and money scrutinising the affairs of the UK’s biggest businesses.” He went on to note that the increasing number of SAO fines is unlikely to benefit IR35, which will come into effect in April 2020.

IR35 will see businesses become liable if they do not ensure the right amount of tax is paid by any of their contracts who operate through limited companies. They will also be liable if they do not correctly the determine employment status of those they work with. This means that executives could be fined by HMRC if they do not have controls in place to prevent any de facto employees being taxed as contactors. If the correct arrangements are not in place, the SAO regime will keep in and penalties will be given. Those responsible will have to correctly determine how many contractors the business is using and whether they have been classified correctly. This isn’t an easy task, especially for large and complex companies.

At Rubicon Pay we are experts in IR35 and can help your recruitment business prepare for the changes IR35 will bring. For more information about IR35 and how Rubicon Pay can help click here.

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