The new corporate tax payment regime is now well and truly with us. ‘Large’ companies with 31 December 1999 year-ends make their first in-year quarterly corporation tax payment on 14 July.
The new payment regime is not the only major corporate tax change under way. It sits alongside corporate tax self-assessment and changes in the Inland Revenue’s approach to large corporates (not least the ‘spend to save’ initiative).
These make for big changes to UK corporate tax management. But, if we concentrate on the new payment regime, how will it affect UK corporates?
First, it will affect them via cashflow. The cashflow effects of the new payment regime will hurt. Large companies will effectively pay five years’ tax over the four-year period in which the changes are being phased in. The Treasury expects a £7bn plus cashflow gain as a result.
Second, it will affect companies via a greater tax compliance burden.
Those affected now need to make quarterly tax payment calculations, some based on in-year forecasts of tax liabilities. There are also another 15 pages of regulations.
However, this is not all bad news. If this payment regime leads more finance directors to recognise that tax issues need to be monitored in-year, in ‘real time’, it will be doing companies a good service. Companies that understand what makes their tax charge tick, month to month, are the ones that spot issues, risks and opportunities in time to act on them.
Companies that do not do this are much more likely to be hit by ‘surprises’ post year-end – when it is too late to act.
So, where will this lead? Under CTSA, the corporate tax compliance burden is set to grow. Tax managers are increasingly questioning if their staff are best occupied on compliance work. There are powerful arguments for outsourcing compliance work, leaving the in-house tax team for more valuable activity.
Changes to the tax payment regime are yet another pressure helping to bring tax functions out of the ‘back room’ and into the forefront of the business.
Tony Elgood is the PricewaterhouseCoopers partner responsible for corporate tax management
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