Corporate Tax Self Assessment
Corporation Tax Self-Assessment (CTSA) applies to all companies within the charge to UK Corporation Tax for accounting periods ending on or after
1 July 1999
. It applies not only to the
UK
resident companies but also to other entities within the charge to UK Corporation Tax.
But what does this really mean?
The major changes are to do with transfer pricing, particularly the documentation requirements, as the company will be self-assessing its own tax, and the increased investigative powers that the UK Revenue has to enquire into a company’s returns.
When the Director or authorised signatory signs the company's corporate tax return, they will now be signing that all inter-company transactions have been made at arms length and that there is adequate documentation in place to support this. This documentation should include the detail of the transactions and the steps that the company has taken to validate the price, including third party comparables.
Previously, although the UK Revenue could investigate the transfer pricing arrangements of a company, the onus was on the UK Revenue to choose the cases and to make a direction that the transfer price needed adjustment. The onus has now moved to the company to show it can validate its transfer price and there are penalties for those that fail to keep relevant documentation or who make incorrect returns. These penalties can be significant. The penalties for failing to keep records is £3,000 and the penalty for making an incorrect return can be equivalent to 100% of the amount of the tax adjustment, which is made under any transfer pricing enquiry. A company will be in a very weak position to defend itself against penalties or adjustments if it has no transfer pricing documentation and the Revenue opens an enquiry into this.
A company will be self-assessing its own tax. This includes its tax in relation to its transfer pricing arrangements as detailed and also its tax relation to loans by close companies to their participators and on controlled foreign companies. Large companies are required to make quarterly instalment payments of their corporation tax with transitional rules applying to accounting periods ending on or before
30 June 2002
. If a company fails to deliver a corporation tax return the UK Revenue may determine the tax payable by the company issuing a determination of tax payable. This can only be done at any time after eighteen months after the end of the relevant period. There is no right to appeal against a determination. The only way to displace this is by filing a tax return. This can lead to fraught negotiations with the Collector of Taxes who is seeking to collect tax. Timely submission of returns is therefore very important.
The UK Revenue now has increased powers to enquire into any company that falls within the CTSA regime. When a notice of enquiry is received it is extremely important to get professional advice. A good working relationship with the Inspector may avoid the UK Revenue using their information powers, which they have to support the enquiry process. Once these have been used and formal notices requesting information are given to the company, the company can quickly find itself in a penalty position for failing to provide either documents or information in the relevant time frame.
The UK Revenue has a fixed period to start an enquiry, which is at least twelve months after the normal filing date. The actual period depends on individual circumstances.
Where the limit passes and no enquiry has started, the company's return is final, subject to the UK Revenue using the discovery provisions. These discovery provisions mean that it is extremely important that adequate disclosure is made to the UK Revenue of tax sensitive items.
So, in summary, CTSA can result in large penalties for the unaware. The UK Revenue is likely to use the new powers at its disposal to seek to increase the tax take on target companies. To try and keep these to a minimum, companies need to ensure that they are happy with the arrangements that they have in place. |
