Peter Williams – Will any quarter be given?

Next week, many companies will send a cheque to the Inland Revenue.

For 31 December year-ends, 14 July is the deadline for the first quarterly payment on account of corporation tax. Most companies will hand the cash over in time. Unfortunately many will actually be paying the wrong amount.

Tax experts are pleading with the Revenue for help with the new payment system. Companies are busy estimating how much tax they will have to pay, basing their guesswork upon probable future earnings. As it stands, businesses are faced with the fact that they will pay interest to the taxman if it turns out that the quarterly payment is too small. Most companies and their tax advisers grudgingly accept that handing over interest to the Revenue will become a way of life.

What worries and angers them is that the Revenue has powers to impose penalty payments in addition to the interest charges. The Revenue is saying that those penalty-exacting powers will be used in only the most serious cases.

A penalty will only be charged on an insufficient payment if the company deliberately or recklessly fails to make adequate payments. This includes the cases where a company fails to pay in accordance with its bona fide estimate of liability and where a company makes no attempt at a rational estimate of its liability.

It could include the case where a company fails to adjust its second and subsequent payments. This seems fair enough. Equally fair is the Revenue proclamation that it knows that no company has the ability to predict the future. In particular, no company can tell in advance the timing of major disposals or acquisitions occurring near the end of an accounting period.

The Revenue stance appears reasonable, but business and the taxman often take a different view of what is reasonable.

Tax professionals, led by bodies such as the Chartered Institute of Taxation, have been pushing the Revenue for detailed guidance on a whole host of situations which will arise in practice and which will make estimating corporation tax liabilities nigh on impossible for finance directors, their staff and their advisers.

The Revenue should have produced such guidelines before the first big wave of quarterly payments reached its account. That clearly won’t happen but it should produce something before the next quarter day comes around.

Otherwise, when the first penalties are imposed and tax advisers are trying to deflect the finance director’s wrath, the Revenue will be left open to accusations of acting as judge and jury over a system which is simply unfair.

Peter Williams is a freelance writer and director of Kato Publishing.

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