Unhappy New Year: for companies facing 115% tax bills in January
KPMG is warning that many companies face a tax payment double whammy as payment dates from old and new tax systems coincide. Some face an effective tax charge of 115%.
The 115% charge next month arises as they will have to pay last year’s corporate tax bill along with the second instalment of the new CTSA regime.
Iain Stewart, Partner, KPMG Tax Advisers, said: ‘In January, those companies with March 31 year-ends will have to pay the tax bills due for last year under the UK’s old system, which was nine months after the end of their accounting period. On January 14 they will also have to pay the next 15% instalment of the tax bill for the current year’s profits, which, under CTSA, companies have to guess.
‘So it will be a time not only for accurate crystal-ball gazing but very tight debt management in December to ensure they have sufficient cash-flow to pay all the tax.’
Iain Stewart added: ‘Companies must realise that suppliers and creditors may well be treating them more firmly in terms of credit as they try to ensure their own cash-flow is sufficient to cope with the January double whammy. So it is essential that affected companies don’t just leave all this to the tax department but address the business issues involved.’
This problem is likely to put pressure on cash flow as companies tend to close payment runs early in December for what this year is a longer holiday break than usual. And there has been the additional problem of companies making last-minute preparations for Y2K this year.
CORPORATE TAX – Tax wags the accounting dog