Thathiah: HMRC unsuccessful in first senior accounting officer penalty appeal

13 September 2017. Published by Michelle Sloane, Partner

In Kreeson Thathiah v HMRC [2017] UKFTT 0601 (TC), the First-tier Tribunal (FTT) allowed an appeal against penalties which had been assessed on the finance director of a group of companies under the Senior Accounting Officer (SAO) regime, contained in Schedule 46, Finance Act 2009 (FA 2009).


The SAO regime was introduced by FA 2009 and requires large companies and groups to identify the individual who is responsible for certifying to HMRC each year that they have in place  “appropriate tax accounting arrangements”. The SAO has personal liability to take reasonable steps to ensure that this is the case, with a breach of the rules resulting in a personal penalty of £5,000.

Mr Kreeson Thathiah (the Appellant) was the finance director and SAO of the Lenlyn group of companies, a privately owned group which included International Currency Exchange (ICE). The group's activities included the provision of currency exchange and other financial services. 

The Appellant provided SAO certificates to HMRC for a number of group companies, including ICE, for the financial years ending 28 February 2011 to 2013, inclusive.  

The Appellant ceased working for the Lenlyn group in March 2014, although his employment did not formally cease until 1 May 2014. Following his departure, the group's tax advisors, KPMG, informed HMRC of errors they considered had been made in the VAT returns for one of the group's companies, representing VAT underpayments of around £1.36 million.  These errors gave HMRC reason to believe that the Appellant had failed in his SAO duties and it imposed two £5,000 penalties in relation to two of the periods he had provided SAO certificates.  

The Appellant disputed the penalties and appealed the assessments to the FTT.  

FTT's decision

The appeal was allowed and the penalties cancelled.  

HMRC argued that the Appellant had breached his SAO duty by failing to put in place a system for selective testing or sampling of figures in the company's VAT returns to ensure the figures were correct and had relied excessively on comparing figures with those in previous VAT returns.  It was also argued that the Appellant had been unable to provide a reasonable excuse for the failure.  

The Appellant argued that he had taken all reasonable steps, within the resources available to him, to comply with his statutory duties.  

The FTT considered that HMRC had incorrectly focused on whether the Appellant had a reasonable excuse for the failure, rather than whether he had breached his main duty by failing to ensure that the company established and maintained appropriate tax arrangements. In the view of the FTT, in order for a breach to be established under the SAO regime, it must be shown that there has been a failure by the SAO to take "reasonable steps" to ensure the company establishes and maintains appropriate tax arrangements. The FTT considered that whether "reasonable steps" had been taken is an objective test which must be determined by reference to all the circumstances.     

The FTT concluded that the Appellant had made a number of improvements in the group, including establishing an internal tax team, increased automation to reduce errors, expansion of the tax risk register and he had introduced a comprehensive tax policy document.  In addition, KPMG was engaged to conduct a substantive yearly audit.  In these circumstances, the FTT agreed with the Appellant that he had done what he reasonably could with the resources available to him.  

In rejecting HMRC's argument that the absence of selective testing of VAT invoices lead to a conclusion that the Appellant had not undertaken reasonable steps, the FTT noted that whilst sampling of invoices would be a desirable step, the absence of such sampling did not necessarily lead to a breach of the SAO duty.  


It is understood that this is the first time the SAO regime has been considered by the FTT.  The decision provides helpful guidance as to what constitutes "appropriate tax arrangements", for the purpose of the regime.  What constitutes "reasonable steps" in order for an SAO to comply with the regime will depend on the size of the business and the resources available to the SAO.  It is not a case of one size fits all.  

It is also worth noting that the FTT was critical of HMRC's conduct in this case, commenting that it had failed to take account of the fact that the Appellant received no support from the Lenlyn group and had no access to the KPMG error correction notice (due to HMRC's concerns in relation to taxpayer confidentiality) until it was provided as an exhibit to a witness statement during the course of the appeal. HMRC also failed to draw a distinction between what could be expected in terms of steps taken by a smaller organisation compared with a larger organisation.  

A copy of the decision can be found here.

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