Taxation – Self-assessment: the second coming

Have you reached that stage in the tax year when all your clients’ay. Chartered Institute of Taxation and a partner in Moores Rowland. tax returns are safely lodged with the Inland Revenue and you are checking that all of your clients have been told the amounts they are due to pay on 31 January? Or are you, like most of us, wondering if you will ever meet the 31 January deadline?

Stop a moment to consider the joys to come. CTSA, the legislation for corporation tax self-assessment, is on the statute book. What steps are you taking to ensure that your client companies submit complete and correct returns?

There will always be cases of a genuine difference in interpretation of tax law but, surprisingly, disputes of this nature account for only a small proportion of the adjustments agreed with the Revenue – even in the Large Business Offices. A majority of districts find that the computations adjusted for ignorance exceed those cases where there is a genuine difference of view. When you add in the cases where the interpretation adopted has some support in tax law but does not bear close scrutiny, even the Large Business Offices find that the ‘untenable view’ cases exceed the ‘genuine difference’ cases.

In the past, it has not mattered too much because the Revenue does the checking and if it is wrong and tax has been underpaid there is only interest at stake. But the possibility of penalties might make us consider training our tax staff a little more closely to ensure the only differences of interpretation are those we would be happy to argue before the commissioners.

Carelessness costs money

Yet these technical adjustments pale into insignificance compared

with the most common cause of adjustment, which is pure carelessness.

It should not be too difficult to make sure the computations actually add up or that the figures reconcile to those in the accounts, or that the figures brought forward from last year are the same as those ultimately agreed to be carried forward on agreement of last year’s computations.

We can, of course, continue to rely on the Revenue checking these basic points but it may charge us a penalty to do so.

Will the new tax return for CTSA be more user friendly? Should it require particulars of loans to participators, ask questions on dividends paid and relevant payments such as charges on income, or request an analysis of legal and professional fees? If the Revenue asks the right questions it may receive the right answers.

Perhaps legislation can help. The frequency of arguments over whether items are capital or income, whether fittings in buildings are plant eligible for capital allowances or part of the building and tax nothings, and timing differences on the recognition of income or provisions, suggests there are still substantial differences between commercial practice and tax law.

A different perspective

The whole question of the extent to which commercial accounting practices are fully appreciated by those that draft them is the subject of another debate, but further clarity in these areas could significantly reduce the adjustments required.

Areas where judgement is required, such as the valuation of unquoted shares, and the provision of goods and services at market value for transfer pricing purposes are a fertile ground for dispute. In many of these cases, the difference between the starting points of the taxpayer and the Revenue are several times the lower figure, and agreement of the final compromise figure can take years to reach.

Perhaps there is a need for a change of attitude on both sides. Practitioners who have advocated starting off with a sensible middle value have too often seen it regarded as the starting point in negotiations rather than a figure which ought to be capable of agreement without adjustment, perhaps because the Revenue has seen so many extreme values that it assumes that every value put forward is similarly extreme, and can only be countered by a stance in the opposite direction.

If such a change in attitudes is desirable, how is it to be achieved?

Answers, please, on a postcard! Nigel Eastaway is chairman of the Chartered Institute of Taxation and a partner in Moores Rowland.

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