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David Whiscombe of BKL Tax outlines a potentially useful exception to the normal rules on company tax return filing dates and penalties, and highlights a recent tax case that underlines the importance of paying attention to detail.  

David Whiscombe

Fine points of filing

Everyone knows that if a company is entitled to an extended Companies House filing deadline, the same extension is applied for Corporation Tax filing.  Historically, this has perhaps most often applied where a company has overseas interests, where a three-month extension has been available on demand (though of course this has not applied since 1 January 2005). 
 
What may be overlooked (at least, in our experience, by HMRC) is that overseas interests were not the only circumstance in which this applied.  The same thing can happen where a company shortens its accounting period.  The filing date in such circumstances cannot be less than three months after the date on which the form 225 shortening the accounting reference period is filed at Companies House: and, as we have said, this extension applies for Corporation Tax as well as for Companies House purposes.
 
For example, in a recent case here the Accounting Reference Date was brought forward from 31 July to 31 March 2007 and accounts filed (both at Companies House and with HMRC) on 1 June 2008.  The CT late filing penalty that would on the face of it be due falls away because filing the 225 on 10 March 2008 extends the filing date to 10 June 2008.
 
We have sent HMRC our invoice for training their staff...

Barking at the moon

The recent Special Commissioners' case of Barkers of Malton Limited is yet another reminder of the importance of what we believe our transatlantic cousins call "sweating the small stuff" (by which we understand them to mean getting the details right).

The case was about the preservation of trading losses under ICTA 1988, s 343 on the hive-down of a loss-making business to a subsidiary which was then sold.  In such circumstances losses are preserved both on the intra-group transfer of the business on hive-down to the subsidiary and also on any subsequent intra-group transfer of the business from the subsidiary to the purchaser (subject to the anti-avoidance rules at s 768, which were not in point here).  In principle the hive-down - sale - hive-up route is not objectionable as a strategy to preserve losses; but it is important that the trade is in fact actually carried on by the "carrier" subsidiary at some point.  And that was the problem in Barkers.  When the garage (for such it was) opened for business at 9:00 am the trade was being carried on by the old company: by 10:30 it was being carried on by the new company, having in the interim been hived down, the subsidiary sold and the trade hived up.  And all the while the mechanics were happily mechanicking blissfully unaware of the changes whirling around them.  The problem is obvious: how can you show that the "carrier" subsidiary was actually carrying on the trade for those 90 minutes?

Transferring legal title to assets, novating contracts, transferring employees, opening a bank account, notifying customers and performing (twice in 90 minutes) all the usual steps to transfer a trade is not practicable.  Demonstrating that the old company carried on the trade as undisclosed agent for the "carrier" company should suffice, though leaving a rather bigger gap than 90 minutes would be desirable where practicable, so that there are in fact transactions with third parties made in the period of trading by the carrier.  What is unhelpful, as Barkers found, is for the minutes to misrecord what actually happened at the relevant board meetings; and for the subsequent Corporation Tax return for the "carrier" to assert that "the company has not traded"!

All in all, a salutary reminder that dotting i's and crossing t's still matters.

BKL Tax is a division of Berg Kaprow Lewis LLP. For information about BKL Tax Consultancy Services, visit www.bkltax.co.uk or call 020 8922 9222 for telephone support.

Brass Tax is intended for general guidance only and no liability is accepted for actions taken in reliance upon these notes. Where appropriate professional advice should be taken. Such advice is available under the terms of the BrassTax®Plus service. See the BKL Tax website for details. www.bkltax.co.uk.

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