As if planning for the euro and overcoming the millennium bug were not enough, companies now have corporation tax changes to contend with.
Chancellor Gordon Brown’s first Budgets introduced two fundamental alterations: all companies will need to comply with corporation tax self-assessment; and large companies – broadly those where the group’s annual taxable profits exceed #1.5m – must pay their tax in instalments, in some cases bringing payments forward by up to 15 months.
Both changes come into force for accounting periods ending after 30 June 1999.
The biggest change is the quarterly payment of CT.
Companies must forecast their CT profits six months into the accounting year and then make the first payment.
The effects of these new rules go beyond the tax function, affecting finance, accounting and treasury. Internal communication of the changes will be paramount. Companies could be paying four years’ CT during the first three years of the new system.
Cashflows and forecasts will need changing and, in light of these, companies should examine their borrowing requirements and approach their bank for an increased facility where necessary. Payments need to be correct or interest will be charged at commercial rates on any shortfall.
While not every company will be affected by the change to the payment system, all companies must comply with CTSA. The administrative burden is being shifted away from the Inland Revenue to business, and companies must give notice of their tax liability to the Revenue even if a tax return is not requested. Failure to comply could lead to fines of up to 100% of the tax due. They must also retain documentary evidence of their business transactions for six years.
Where a UK company has associated overseas companies, it will be legally bound to comply with complex tax rules on inter-company pricing and controlled foreign companies.
The Revenue is publishing further guidance this month but, with companies entering the first SA period in July, there is little time to get acquainted with these new rules.
Paul Eagland is a partner at BDO Stoy Hayward.
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