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The interaction with other regimes

The view from Counsel

The interaction with other regimes – the view from CounselTax Counsel has considered the interaction of SAO with other measures, specifically the duties of Directors under the Companies Act and the company penalty regime in relation to filing complete and accurate tax returns. Nikhil Mehta of Gray's Inn Tax Chambers has two key observations:

Interaction with company director legislation

Broadly, where the SAO is a Director, the SAO legislation does not add to their existing duties under the Companies Act. Therefore any SAO that is exercising reasonable care, skill and diligence to the level that would be expected of a company director is likely to satisfy the SAO main duty. The Courts are likely to look to existing case law around the expectations of Directors when considering SAO failures and Counsel believes that this will centre on an evaluation of how they have fulfilled their supervisory duties. This suggests your SAO should consider the direction they give to their tax teams and the resources they make available rather than focussing on their involvement with day-to-day tax activity. Counsel believes that given the similarity of the measures, there is a risk that in future an SAO failure could lead also to a Companies Act failure.

Company penalty regime

There is an interaction between the SAO legislation and HMRC’s penalty regime which includes a penalty for a failure to take reasonable care when preparing and submitting a tax return. Although the two use similar language, such a penalty should not necessarily always indicate a supervisory failure of an SAO and lead to a failure in SAO duty. However, in both HMRC’s penalty regime and the SAO legislation, the identification of errors and weaknesses is crucial. A reoccurrence of a known error or weakness, even if relatively small, could lead not only to an SAO penalty but also to the company being exposed to a ‘deliberate understatement’ penalty of between 20% and 70% of the tax at stake.


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