In Kreeson Thathiah v HMRC [2017] TC06043 the First Tier Tribunal (FTT) found that HMRC could not prove that the Senior Accounting Officer had failed to take reasonable steps to establish and maintain appropriate tax accounting arrangements.

This case gives us a good indication of what the courts will look at when trying to establish if a SAO had acted reasonably.

  • The SAO completed his certificates and after he had left, an error correction notification on behalf of the VAT group totalling £1.36million was made.
  • HMRC met the SAO and assessed him for £10,000 of Penalties under the SAO rules.
  • No information was given to the ex-SAO in relation to the errors due to confidentiality and he was given no support from the former employer.

HMRC’s view was that KT had not taken reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements.

The FTT determined that the accounting arrangements were not appropriate, but cancelled the penalties on the basis that the SAO had taken reasonable steps. In particular the SAO had:

  • Increased automation in an effort to reduce errors
  • Expanded the tax risk register.
  • Introduced a comprehensive tax policy document.
  • Introduced some processes and controls, albeit undocumented.
  • Introduced a team to help manage the finance functions.
  • Arranged for the tax manager to be trained on VAT by KPMG.
  • Assigned some responsibility for checking the VAT to the group FC.
  • Arranged for a quarterly budget of £7,500 for ongoing support from KPMG, most of which was used up on partial exemption queries.
  • Met the group FC on a monthly basis to discuss the VAT.
  • Performed sense checks, variance checks and specific checks on largest items personally.
  • Regularly met with the group’s HMRC Customer Relationship Manager (CRM).
  • Regularly tried to obtain additional resources, but was denied them.
  • Instructed KPMG to undertake compliance reviews which led to the Error correction notfication.

The FTT also found:

  • The resources available to the SAO and his authority to bring about change must be taken into account.
  • The impression is of gradual improvement despite limited resources.
  • Selective testing is desirable and its absence may have led to unspotted VAT errors in this case.
  • The Partial exemption position was clearly key. The SAO had arranged for a detailed review by KPMG and had instructed them to agree a new special method with HMRC.
  • The errors took place within three years from the implementation of the agreed new partial exemption method.

The FTT concluded that KT had taken reasonable steps and the penalties were cancelled. The FTT did not need to considered whether there was a Reasonable excuse.

The judge also expressed concern over HMRC’s approach particularly:

  • HMRC relied heavily on what the SAO said in their meeting with him, but had not given him any detail about the VAT errors to enable him to prepare and comment.
  • The HMRC personnel that attended the meeting had had no dealings with the business for the periods in question.
  • HMRC made no allowance for the fact that the SAO was unrepresented and had no access to support from the employer.
  • HMRC were too focussed on whether there was a reasonable excuse and not whether reasonable steps had been taken.


Penalties: Senior Accounting Officers

Grounds for appeal: Reasonable excuse

VAT Groups

Correcting VAT errors

Partial exemption & input VAT

Penalties (VAT)

External link: Kreeson Thathiah v HMRC [2017] TC06043


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