The Senior Accounting Officer (SAO) rules for the largest companies have been in place for about 3 years now and, although some companies who have to follow the rules moan about the extra admin burden of complying, from a tax compliance point of view we believe that the processes involved do help to significantly reduce the risk of major errors arising on the PAYE side.

In fact, we believe that smaller employers (by smaller we mean most businesses that are not huge enough to be caught by the SAO rules)  can learn a lot from the SAO rules and this is why we often recommend that the processes, or at least some of them, are adopted by clients when we are helping them to improve how they manage employee payments and benefits. With this in mind, we thought it would be useful to highlight some of the areas that can be improved by adopting SAO-like processes to employers who are not overly familiar with the formal SAO rules.

SAO rules overview

1) A Qualifying Company (to which the rules apply) is:

  • A company incorporated in the UK for the financial year (this excludes certain organisations such as LLPs and Public Bodies and the tax residency status of the company is irrelevant).

AND For the PROCEEDING financial year have:

  • Turnover of over £200million* and/or
  • Balance sheet total of over £2billion*

* These figures are either for the company alone or aggregated with other UK companies when in a group situation

2) The company must identify a person who will be the Senior Accounting Officer (this is usually the person or director who has overall responsibility for the Finance function of the business)

3) The SAO is responsible for ensuring the company "establishes and maintains appropriate tax accounting arrangements to allow tax liabilities to be calculated accurately in all material respects".

4) The SAO provides HMRC with a certificate each year to confirm the company had appropriate tax accounting arrangements or to provide details of areas where the arrangements were "not up to scratch".

5) Financial penalties of up to £5,000 can be applied (usually on the individual SAO !!!) for non compliance with the above rules.


Why it would be beneficial for all employers to adopt the SAO rules

The main crux of the SAO rules is point 3 above around "appropriate tax accounting arrangements". This can be interpreted a number of different ways and each affected company will implement different methods to achieve this, depending on the size of the business, corporate structure, locations, complexity of the Finance function, nature of the business and payments, etc etc. This may involve some of the following features in relation to PAYE:

  • Up to date policies, e.g. around staff expenses/benefits, company cars, business travel, relocations, terminations, etc and that these policies are properly understood and followed by staff and line management across the organisation
  • Robust processes and procedures that:
    • Effectively capture and record accurate data, including from third parties such as pension providers, share plan administrators, car providers, etc
    • Do not over rely on manual intervention
    • Can produce complete and accurate reports for HMRC returns (including a full audit trail)
    • Ensure the maintenance and retention of required records to support data held and returns made
    • Facilitate appropriate checking and monitoring to identify any problem areas at an early stage
    • Enable effective data flows between different departments, locations, group companies, etc
    • Accurately track employee movements, secondments, relocations, etc (important in the context of travel and accommodation costs, UK and overseas tax obligations, share based payments, etc)
    • Account for changing laws both for employment taxation and employment law
    • Minimise risks in some critical areas, e.g. engagement of self employed workers, termination settlements, staff reward structures, etc
  • Properly trained Finance staff
  • An awareness of the common tax problem areas
  • Provision of external advice when appropriate
  • Comprehensive checking and auditing processes at year-end
  • Maximum use of technology as a risk management tool
  • Up to date and comprehensive agreements with HMRC
  • A centralised, consistent, approach to monitoring and authorising staff payments


Obviously, not all of the above will apply to all employers but even if some of the above suggestions are implemented it will go a long way to improving the overall PAYE compliance of the business by reducing the risks of additional liabilities arising and exposure to penalty charges by HMRC. We have worked with a lot of businesses in making some of these changes and there is absolutely no doubt that each business is in a much better place than they were before on PAYE compliance and most have an improved standing with HMRC as a result.

Even smaller employers with 20+ staff can benefit from some of the above methods to improve PAYE compliance. After all, the smaller businesses are the easier target for HMRC and so they will arguably come under more scrutiny from HMRC than the big boys and so it is just as important to plug the gaps no matter how small they may appear to be.


Yes, there are certain aspects of the SAO rules that are rather unsavoury for companies who have to comply such as the need to provide certificates to HMRC and the potential threat of penalties for the individual SAO if things are not done quite by the book.

However, it is clear that those companies that have to follow the SAO guidelines are much stronger at tax compliance than they used to be before and, whilst mistakes can still be, and are, made, these are normally isolated and infrequent incidents which HMRC tend to deal with leniently in view of the company's general efforts to have robust processes and procedures.

The focus by HMRC is very much on tax risk management nowadays and there is certainly a thing or two for employers of all sizes to learn from those companies who have had to tighten things up for the SAO rules. You can have the best, most efficient people in the business but if the systems and processes are poor around employee payments and benefits then it is always going to be a fighting battle to get the PAYE compliance right most (or some ?!) of the time.

Please do get in touch if you are:

  1. An employer already affected by the SAO legislation and you want some help in "beefing up" your processes or just need a refresher around some of the things you should be doing. Or
  2. An employer who thinks they MAY be caught by SAO but have not done anything about it yet. Or
  3. An employer who:
    1. Is using manual, paper based, processes to record or make employee expenses payments
    2. Does not have formal, or efficient, controls within the business to consider PAYE tax risks
    3. Has a number of different sign-off procedures for staff payments involving numerous departments, locations and managers
    4. Does not do much in the way of checking or auditing processes regularly
    5. Does not take much advice on PAYE compliance other than with one-off situations
    6. Has not changed procedures, or the way in which employee payments are processed and reported, for many years
    7. Is uncomfortable about the way in which employee movements are tracked
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