Introduction The corporation tax self assessment (CTSA) system was introduced (shortly after income tax self assessment for individuals) with effect for accounting periods ended after 30 June 1999. Companies are required to file a corporation tax return (form CT600) together with supplementary pages (if appropriate) and full accounts and computations with the Inland Revenue. Deadlines apply to the filing of CTSA returns and the payment of corporation tax. Here is a '1 Minute Guide' to CTSA. This guide only provides a very brief, basic outline of the regime. Professional advice should always be taken based on specific circumstances.
10 Key Points - Notifying the Inland Revenue
Companies are required to give written notification to the Inland Revenue within 3 months after the start of its first accounting period, or 3 months after the start of a subsequent accounting period that does not follow a previous one (e.g. dormant companies that begin to trade again). There is a separate obligation for the company to notify the Revenue of chargeability to tax within 12 months from the end of its accounting period. However, in practice both notification requirements are often satisfied by completing form CT41G ('Corporation tax new company details') and submitting it within the earlier time limit. Penalties can be imposed for failing to comply with the notification requirements. - What is the filing date for tax returns?
The filing deadline for the CTSA return (plus accounts and tax computations) is normally 12 months from the end of the accounting period. However, the filing date can actually be the later of the following dates: - 12 months from the end of the accounting period; - if the company's accounts are prepared for a period of between 12 and 18 months, the filing date for the returns is 12 months from the end of that period of account; - iIf the company's accounts are prepared for a period exceeding 18 months, returns must be filed within 30 months from the beginning of the period of account; or - 3 months from the date on which a notice to file a CTSA return is issued. Automatic penalties apply for late returns (see 'Penalties' below). - When does tax become payable under CTSA?
Most companies are required to pay their self-assessment of corporation tax within 9 months and 1 day after the end of its accounting period. However, certain 'large' companies are required to pay their corporation tax by up to 4 quarterly instalments, based on the company's estimated tax liability for the accounting period (see 'Instalments by 'large' companies' below). Companies are also generally required to account to the Inland Revenue (under the CT61 quarterly accounting procedure) for any income tax deducted (e.g. from certain interest payments). Returns of income tax are made to 31 March, 30 June, 30 September and 31 December, and the tax is due within 14 days after the relevant quarter end. If the company's accounting year end does not coincide with one of these quarter days, the company also has an extra return period. - Instalments by 'large' companies
A company is 'large' if its profits are at or above the upper limit for small companies' relief purposes (£1.5 million for financial year 2005). The limit is reduced pro-rata if there are associated companies, and for accounting periods of less than 12 months. This means that, for example, a company with a large number of associates may be a 'large' company for instalment purposes even though its profits are relatively low. However, a company is not treated as large if its profits for an accounting period do not exceed £10,000 (reduced proportionately for accounting periods of less than 12 months). In addition, a company is not required to pay by instalments if its taxable profits for an accounting period do not exceed £10 million (reduced proportionately by the number of any associated companies, plus one) and if it was not 'large' in the previous year. For further information about the quarterly instalment system, see the Inland Revenue booklet SA/BK3 A Modern System for Corporation Tax Payments: A Guide to Quarterly Instalment Payments. - Interest on corporation tax
The company is liable to interest charges if corporation tax is not paid by the due date, or if instalments of tax are inadequate. Interest on tax paid late runs from the due date until the actual date of payment. The interest is deductible from the company's profits for tax purposes. If tax is overpaid, interest on the overpaid tax runs from the later of the date on which the tax was paid and the due date to the date on which the repayment order is issued. Interest on overpaid corporation tax is taxable income of the company. Interest is also chargeable on late payments of income tax under the quarterly accounting procedure, from the due date until the payment date. Interest rates on underpaid tax are higher than overpaid tax, and details of rates, etc can be obtained from the Inland Revenue website. - Penalties
The CTSA system features a penalty regime for non-compliance. Perhaps the most common penalty is for late tax returns. If a return is filed up to 3 months late, a fixed penalty of £100 is imposed (or £500 for a third consecutive late return). If the return is over 3 months late, the fixed penalty is £200 (or £1,000 for a third consecutive late return). If the return is filed between 18 and 24 months after the end of the accounting period, an additional tax geared penalty is imposed of 10% of the unpaid tax. If the return is filed more than 24 months after the end of the accounting period, the penalty is 20% of the unpaid tax. However, late filing penalties can be forgiven if there is a reasonable excuse for the failure. In addition, by concession a penalty will not be charged if the Return is filed with the Revenue by the last business day within 7 days following the filing date. In addition to late filing penalties, a company can become liable to penalties in other circumstances, such as failure to notify chargeability to corporation tax and failure to maintain adequate records. - What is the time limit for correcting tax returns?
The Inland Revenue can correct obvious errors in the CTSA return or any amendment (e.g. arithmetic mistakes) within 9 months following the date on which the return or amendment was filed. The company may amend its return by notifying the Revenue within 12 months following the filing date. However, if the return is under enquiry by the Revenue, the amendment does not take effect until the enquiry is completed. - What is the time limit for an Inland Revenue enquiry into a tax return?
Tax returns may be selected at random for enquiry by the Inland Revenue, but the majority are chosen because the Revenue considers that they may be incorrect, or possibly to obtain clarification on a particular aspect of the return. The Revenue is not required to state whether an enquiry is random or if the return has been selected deliberately. The time limit for the Revenue to issue a notice of their intention to enquire into a return is within 12 months from the filing date, assuming that the return was filed on time. If the return is filed late, the time limit is extended to 12 months from the date the return is filed, plus the period to the next 'quarter day'. The quarter days are 31 January, 30 April, 31 July and 31 October. If the return has subsequently been amended, the time limit for an enquiry is 12 months from the date on which the amendment was made, plus the period to the next quarter day. - 'Discovery' and 'Determination'
'Discovery' – The Inland Revenue can make a discovery assessment in certain circumstances, i.e. broadly if a CTSA return is discovered to contain omissions, or if the amount of tax assessed is insufficient, or if excessive relief has been given. If the CTSA return has already been filed, a discovery assessment can only be made if there is a loss of tax due to fraud or negligence, or if facts giving rise to the loss of tax became known to the Revenue after the time limit for opening an enquiry had expired (or after the closure of an enquiry) and the Revenue could not reasonably be expected to have been aware of the facts from the information made available at the time. The normal time limit for discovery assessments is 6 years after the end of the relevant accounting period, but this is increased to 21 years in cases of fraud or neglect.
'Determination' – If a company fails to file its CTSA return, the Inland Revenue may determine the tax liability. The normal time limit for a determination is within 5 years from the filing date. A determination is treated as a self-assessment in terms of payment, collection, recovery, interest and penalties. However, a determination can be displaced if the company files its tax return within 12 months of the determination or, if later, within 5 years of the date when a determination could be made. - Record keeping
Companies are required to keep information supporting their tax returns, normally for 6 years from the end of the relevant accounting period. This retention period may be later in the case of an Inland Revenue enquiry (i.e. the information must be kept until the enquiry is complete) or if the CTSA return is late (in which case the information must be kept until the Revenue can no longer enquire into the return). The maximum penalty for failing to comply with record keeping requirements is £3,000 per accounting period. However, in practice penalties are applied in more serious cases. Further information on record keeping for companies is contained in Revenue booklet CTSA/BK4 A general guide to Corporation Tax Self Assessment Disclaimer The content of these guides is based on tax legislation in operation at the time of publication, which may subsequently have changed. Whilst every care has been taken in its production, no responsibility can be accepted for any action undertaken or refrained from as a consequence of this material. This information is for general guidance only. Specific professional advice should always be obtained based on personal circumstances. TaxationWeb Limited accepts no responsibility whatsoever for any action undertaken or refrained from as a result of the information contained herein. |
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About The Author
Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence.
Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms.
He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website. |
