Darling’s Sarbanes-Oxley rule ‘a threat to British business’

Directives unveiled in yesterday's Budget will establish a statutory requirement for a "senior accounting officer" — typically a company's finance director — in major companies to certify personally that the business's tax returns are accurate.

The plan echoes the draconian rules brought in under the Sarbanes-Oxley Act in the US framed in response to the financial scandal at Enron, the world's biggest corporate collapse.

That act made company directors personally liable for all financial reports they signed off with penalties of up to 20 years in prison if they were found to be false.

Sarbox, as it became known, was discredited for causing corporate decision-making paralysis as well as leading to a huge rise in accounting costs. Companies were forced to demand more time of their auditors to get the figures right and the auditors billed accordingly, leading to a huge rise in fees for the Big Four international accounting giants.

City law firm Berwin Leighton Paisner said putting such an onus on finance directors in the UK as part of Darling's wider clampdown on tax avoidance could be potentially disastrous.

"Britain is in danger of introducing Sarbanes-Oxley style legislation by the back door which would severely damage UK plc and further encourage companies to emigrate," said Berwin's head of tax Michael Wistow.

"While it is intended to ensure companies pay an extra £140 million of tax in the next four years, in reality it is likely to cause tax to distort commercial decisions.

"We have reservations — real concerns — about the potential implications of this.

"This is an extraordinary retrograde step which shows little sign of learning the lessons of Sarbanes-Oxley," he added.