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Busy Practitioner by Mark McLaughlin ATII TEP

Mark McLaughlin ATII ATT TEP outlines some important changes affecting Self-Assessment taxpayers, new trading companies and others.Much has been written about the tax measures announced in the Budget 2004. The so-called ‘dividends tax’ for small companies and raft of anti-avoidance measures have grabbed the headlines in particular. This article looks at some practical compliance issues affecting the busy practitioner.

Short tax returns

Around one-and-a-half million self-assessment taxpayers with ‘simple’ tax affairs (including small amounts of property income, employees other than company directors and self-employed individuals with turnovers under £15,000) will automatically receive a shorter, four-page tax return from April 2005. Some practitioners will already be familiar with this tax return format, as over 400,000 taxpayers are taking part in a pilot exercise for 2004 returns. There will be no requirement to self-assess the tax liability based on the return, but the Revenue will ‘encourage’ submission of the return by 30 September following the tax year, so that the tax can be calculated and the taxpayer notified of any tax liability by the next 31 January.

Trading companies

Practitioners dealing with the tax affairs of companies will be familiar with form CT41G, which allows the provision of basic information to the Revenue regarding new companies, including details of the company’s actual or expected commencement of trading. The CT41G form is often used to satisfy the statutory requirement to notify chargeability to corporation tax, within 12 months after the end of the company’s accounting period (FA 1998, Schedule 18 paragraph 2(2)). However, the completion of form CT41G will be made mandatory in Finance Act 2004, by an additional requirement to notify the Revenue within three months following the commencement of trading, with penalties for late notification.

Inheritance tax reporting

New regulations later this year will introduce a simplified reporting process for personal representatives where no inheritance tax is payable. This process will ensure that, in the vast majority of estates, the same basic information will be sufficient for both the Probate Service and the Revenue. Information submitted to the Probate Service will be treated as provided direct to the Revenue (please note that different procedures apply in Scotland).

In addition, new inheritance tax penalty rules will apply to information submitted to the Revenue via the Probate Service, which will follow more closely the penalty provisions for income tax and capital gains tax purposes. The main features of this penalty regime include a fixed £100 penalty for the late delivery of an inheritance tax account (subject to a reduction if the tax is lower or if there is a reasonable excuse for late filing), rising to a maximum of £3,000 for accounts not filed within twelve months of the due date. In addition, no penalties will apply if it transpires that information submitted to the Revenue is fraudulent or negligent, provided that there is no additional inheritance tax liability. This represents a change to the existing regime, which imposes penalties of up to £3,000 plus the extra tax in cases of fraud, or up to £1,500 plus the extra tax if the relevant material is submitted negligently (IHTA 1984, s 247).

Disclosing tax avoidance

Taxpayers using certain tax avoidance schemes and arrangements will be required to make a disclosure to that effect on their self-assessment returns. The Revenue will maintain a register of known schemes, each of which will have a reference number. The scheme promoter will notify the taxpayer of this registration number, which must be included on the tax return. If the Revenue are not aware of the scheme or arrangement, the taxpayer will be required to provide details to the Revenue shortly after it is purchased of implemented. The provisions dealing with this new disclosure requirement, including those dealing with the imposition of penalties for non-compliance, are contained in Finance Bill 2004.