Tax Under the Micro Scope

7 November 2014

My colleague, Richard Lowndes, recently blogged about the accounting regime for micro-entities. Now HMRC has announced a relaxation of its filing requirements for micro companies.

From this month, HMRC will permit the filing of accounts in line with the limited disclosure allowed under the so-called FRSME. Whilst this gives a real boost to smaller businesses in lessening their administrative burden, I have to ask if HMRC will really allow a lighter touch regime?

Currently, businesses are encouraged to make full disclosure in respect of items within their accounts, especially those of a more contentious nature, to bring greater certainty to their tax affairs. HMRC has only a period of twelve months from the filing date of a company’s corporation tax return to ask questions about that return, unless there is something within the accounts or return that it later discovers and that wasn’t properly disclosed. If HMRC does find out something of this nature within 6 years of the accounting date, it can raise an assessment for any tax that it believes has been underpaid. Reduced amounts of disclosure in the accounts could give rise to either more enquiries, as HMRC seeks to understand more about a company’s trading in a particular year, or to more discovery assessments as HMRC gleans information from other sources about a company that may not have been apparent originally in the company’s accounts and computations.

To counteract this threat, many advisors will be recommending that micro companies disclose in the corporation tax computations much of the information that would have been in their full accounts. If that’s the case, are smaller companies really a lot further forward? Probably not, although it won’t be HMRC and the government who are advising greater disclosure, so some companies may be seen as turning their backs on the lifting of an administrative burden. I wonder if there will be commentary that some smaller businesses just cannot be helped?!

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