CTSA - taxflash no.1

Self-assessment for companies - or corporation tax self-assessment (CTSA) - has started. There has been far less publicity surrounding its introduction, perhaps because the changes now occurring are less radical than those when self-assessment for individuals was introduced. However CTSA does have major implications for companies, and the most important of these will be covered in detail in future Taxflashes

In this first Taxflash of the series the main features of CTSA are summarised;

Pay and File

Since September 1993 companies have been required to calculate their tax liability and pay this without a prior Inland Revenue assessment, and to submit accounts, a tax return (CT200( and tax computations by a statutory deadline, normally 12 months after the end of the period of account.

These basic requirements are not changed by CTSA but additional responsibilities are imposed.

Scope and Introduction

The new CTSA regime affects companies and also clubs, societies and other unincorporated bodies who are liable to corporation tax.
It is introduced for accounting periods ending after 30 June 1999. Thus for a company with a normal 12 month accounting period to 31 December, the CTSA provisions will apply from 1 January 1999.
Payments of advance corporation tax will cease after 5 April 1999. However this will be replaced by payment of tax by instalments for large companies. Special rules will also apply to surplus advance corporation tax carried forward.
There is also much debate about the proposed introduction to General Anti Avoidance Regulations (GAAR) which could have a serious impact on how a company organises its tax affairs.

Main features

Corporation Tax Returns

Companies will be required to calculate their tax liability and submit a tax return within 12 months after their year end, as they do now. However, the new return will have schedules and requirements to supply additional information, such as international interests, and loans to directors. Additionally the onus of proof will fall on the company to make a correct return. Whereas in the past it was normally for the Inland Revenue to challenge whether a cross-border transaction was at an arms length price, it is now necessary for a company to retain proof that the position it has taken is equivalent to an arms length price.

Inland Revenue enquiries

Potentially, one of the most far reaching changes under CTSA is a new power for the Inland Revenue to make enquiries into a company's tax return up to 12 months after the statutory filing date. This period can be extended if the Inspector has evidence that the return did not disclose all the relevant facts. This means that for at least two years after the end of an accounting period a company will not be certain that the self-assessed tax liability is final.

Large Companies

Payment of tax by instalment is being phased in over four years for large companies. Large companies are those whose taxable profits normally exceed £1.5million, but there are complex rules concerning this. The £1.5million threshold is reduced for companies in a group or which are under common control. Instalments will normally only apply the year after that in which the threshold is exceeded, and tax will usually be payable in four instalments.

Record keeping

CTSA introduces a tax law requirement for companies to keep records sufficient to enable a correct and complete tax return to be made. The records to be kept are generally already required by the Companies Act, but CTSA now requires that such records be kept for a minimum of six years after the end of an accounting period. This is extended if an Inland Revenue enquiry occurs and which continues after this six-year period.

Interest

Under CTSA interest charged on late paid tax will be deductible for corporation tax purposes. Similarly interest on tax repayment will in future be chargeable to tax. Needless to say there will be a difference between the rates of interest charged and paid, in the Inland Revenue's favour!

Penalties

The Pay and File penalty regime for late tax returns is mostly preserved with some additions. For example failing to comply with the requirements for record-keeping carries a penalty of up to £3,000 per accounting period, and failure to respond to a formal Revenue request for information in the event of an enquiry carries a penalty of £50 with an additional £30 penalty per day for continued failure.

Action Required

Please contact the tax partner or manager with whom you normally liaise

Every effort has been made to ensure that the facts in this document are correct at the time of going to press. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted. Authorised to carry on investment business by the Institute of Chartered Accountants in England & Wales.

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