Taxation - Seven New Year's tax resolutions

The beginning of the year is a time when objectives and goals are set by many companies for the year ahead. With this in mind, here are some key issues for companies to consider for managing their corporate tax liabilities.

Tax strategy

Companies should periodically step back from day-to-day matters and review their overall strategic goals. For family and owner-managed businesses these will link into the owners’ circumstances, while for quoted companies the interests of their shareholders and other stakeholders will need to be taken into account.

One area to consider is whether the focus should be on minimising the overall tax charge, perhaps to maximise EPS, or whether the cash tax charge is more important. Plans for dividends or returns of capital should also be considered at this stage.

Relationship with the Revenue

I believe 1997 will be seen in retrospect as a year of substantial shifts in attitudes to tax planning. There are at least three reasons for this: the McGuckian case on the construction of tax statutes, the implementation of several Spend to Save measures, and the Revenue raids on two of the Big Six and other firms.

Because of these reasons and the continuing debate on corporate governance, clients should consider their overall relationship with the Revenue and define their policies.

Tax compliance

Hector will soon be knocking on corporate doors. Corporate tax self-assessment (CTSA) will start next year and this will further increase the benefits of keeping tax affairs up to date. CTSA will also encourage companies to review the process by which their computations are produced. Systems may need changing, and great involvement is needed to ensure the necessary data can be captured and processed efficiently.

Payments on Account (POA)

Coinciding with CTSA, from 1999 companies will move to the system of making quarterly payments on account. It is hoped the original announcement that quarterly payments will be based on expected current-year profits may be changed to a prior-year one.

POA is another factor which will encourage faster preparation of computations.

It will be a factor when forecasting cashflow as part of transactions, re-structurings or normal budgeting.

Transfer Pricing

New legislation on transfer pricing is to be introduced this year after the publication of the Consultative Document in 1997.

Companies that have transactions with overseas affiliates will need to consider the impact of this. For many there will be an additional documentation requirement and for some a re-appraisal of pricing policies.

Abolition of ACT

The abolition of ACT and Foreign Income Dividends from April 1999 will be a key factor for many companies. Companies should be determining the effect of these forthcoming changes on them, and considering the timing of future dividends, whether FIDs should or should not be paid, and wider matters such as company purchase of own shares or re-organisations to establish the structure for the forthcoming regime.

Y2K and EMU

Most businesses will now have started to address the many issues concerning year 2000 compliance. Some will also be reviewing EMU issues irrespective of the fact that the UK will almost certainly not join the first wave.

Both these changes will create several tax issues, particularly for the larger or more complex businesses.

Tax issues that will need addressing include the maximisation of deductions for the costs in converting computer and other systems for these changes.

We have already seen cases within our own practice where EMU is a factor in current tax submissions.

Summary

The pace of change appears to be accelerating, with a wide number of new areas in the corporate tax field. At board level, these need recognition and appreciation so that the various actions are determined to ensure problems do not occur and available opportunities are grasped.