Corporate
and business tax
Corporation
Tax Self Assessment
Corporation
Tax Self Assessment (CTSA) was introduced in 1999. It completed
the self assessment reforms introduced for individuals some
years earlier by extending the principles of self assessment
to company tax returns.
For most companies the process of moving to CTSA was straightforward.
This is because the previous Pay and File rules for the submission
of returns and the payment of tax were substantially unchanged.
Key
Features
The
key features are:
- a
company is required to pay the tax due in advance of filing
a tax return
- a
'process now, check later' enquiry regime when the tax return
is submitted
- the
inclusion in the tax return, and in a single self assessment,
of the liabilities of close companies on loans and advances
to shareholders and others, and of liabilities under Controlled
Foreign Companies legislation
- the
requirement for companies to self assess by reference to
transfer pricing legislation.
Practical
Effect of CTSA for Companies
Notice
to file
Every year, the Revenue issues a Notice to file to companies.
In most cases, the return must be submitted to the Revenue
within 12 months of the end of the accounting period.
Submission of the return
The return required by a Notice to file contains the company's
self assessment, which is final subject to:
- taxpayer
amendment
- Revenue
correction, or
- Revenue
enquiry.
The
company has a right to amend a return (for example changing
a claim to capital allowances). The company has 12 months
from the statutory filing date.
The Revenue has nine months from the date the return is filed
to correct any 'obvious' errors in the return (for example
an incorrect calculation). This process should be a fairly
rare occurrence. In particular the correction of errors does
not involve any judgement as to the accuracy of the figures
in the return. This is dealt with under the enquiry regime.
Enquiries
Under CTSA, the Revenue checks returns and has an explicit
right to enquire into the completeness and accuracy of any
tax return. This right covers all enquiries, from straightforward
requests for further information on individual items through
to full reviews of a company's business including examination
of the company's records.
The main features of the rules for enquiries under CTSA are:
- the
Revenue has a fixed period, of at least 12 months from the
statutory filing date, in which to commence an enquiry
- if
no enquiry is started within this time limit, the company's
return becomes final - subject to the possibility of a Revenue
'discovery'
- the
Revenue will give the company formal notice when an enquiry
commences
- the
Revenue is also required to give formal notice of the completion
of an enquiry, and to state their conclusions
- a
company may ask the Commissioners to direct the Revenue
to close an enquiry if there are no reasonable grounds for
continuing it.
Discovery
assessments
The Revenue has the power to make an assessment (a 'discovery
assessment') if information comes to light after the end of
the enquiry period indicating that the self assessment was
inadequate as a result of fraudulent or negligent conduct,
or of incomplete disclosure.
Summary
of Self Assessment Process
Example
A company prepares accounts for the 12 months ended 31
March 2004.
Key dates under CTSA are:
| 1.01.05 |
Payment
of corporation tax |
| 31.03.05 |
Filing
of return |
| 31.03.06 |
End
of period for Revenue to open enquiry |
On 31 March 2006 the company tax position is finalised
subject to the Revenue's right to make a discovery assessment
in some circumstances.
|
Payment
of Tax
There
is a single, fixed due date for payment of corporation tax,
nine months and one day after the end of the accounting period
(subject to the Quarterly Instalment Payment regime for large
companies).
If the payment is late or is not correct, there will be late
payment interest on tax paid late and repayment interest on
overpayments of tax.
Credit interest
If a company pays tax before the due date, it receives credit
interest on amounts paid early. The rate of interest will
fluctuate and is 0.25% below the average base lending rate
of clearing banks. So, if the average rate is say 5% the credit
interest rate is 4.75%. Any interest received is chargeable
to corporation tax.
Loans to shareholders
If a close company makes a loan to a participator (for example
most shareholders in unquoted companies), the company must
make a payment to the Revenue if the loan is not repaid within
nine months of the end of the accounting period. The amount
of the tax is 25% of the loan. This tax is included within
the CTSA system and the company must report loans outstanding
to participators in the tax return.
Controlled Foreign Companies
A Controlled Foreign Company (CFC) is a non-UK company which
is controlled by UK taxpayers and which operates in a 'low
tax' country. If a UK company has a 25% interest in a CFC,
it may need to include a share of the profits of the CFC in
its tax due.
Transfer pricing
Transfer pricing rules require the market value of transactions
between connected businesses to be recognised for tax purposes.
Until 31 March 2004 the rules only applied to cross-border
transactions. From 1 April 2004, the rules were extended to
cover transactions within the UK. There are also record keeping
regulations which require the companies to demonstrate that
the transactions have taken place at market value.
How
We Can Help
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not hesitate to contact us if you require any further information.
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For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
|
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