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Directors are fall guys for new tax penalty regime

Company directors are to lose more of their limited liability armour in a move to make them personally responsible for mistakes in corporate tax returns.

HM Revenue and Customs want to shift the balance in policing company tax returns by making the financial director or senior accountant the fall guy for tax errors under new regulations. If a tax error comes to light and HMRC can prove ‘careless or deliberate’ accounting, then whoever’s sitting in the senior financial chair is the ‘liable person’ and can face being forced to pay any financial penalties imposed on the company.

To a lot of companies, this makes outsourcing tax responsibilities to professionals who have an in-depth understanding of the tax system and filing deadlines worth considering as a priority – even though the financial senior at the company is still responsible for tax mistakes even if an agent is employed.

The proposal is a UK equivalent to the controversial US Sarbanes-Oxley rules.

Businesses at risk are those that trade across borders who may fall in to tax traps without realising, leaving their directors and companies open to financial risk.

With a new era of tax co-operation between G20 countries and former tax havens sharing tax data, falling in to a tax black hole is a real danger.

For companies who have not yet looked at this new liability, two major decisions have to be made:

   1. The ‘liable officer’ needs to be identified and should take advice on their responsibilities

   2. That person needs to review the firm’s tax position in relation to the new HMRC penalty regime to make sure a compliance process is in place to minimise the risk of tax penalties.

To complicate matters, the ‘liable officer’ may have to repay more than 100% of any tax assessment and penalties against their company and different taxes have the rules applied to them at different start times – for instance the rules already apply to corporation tax, PAYE and NICs from the start of this financial year (April 5, 2009).

A whole pile of other taxes comes under the microscope from next April.


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