Magazine article Management Today

Time to Gear Up for Corporation Tax Changes

Magazine article Management Today

Time to Gear Up for Corporation Tax Changes

Article excerpt

This time next year, corporation tax will undergo a revolution and, according to Nigel McMutrie, senior tax manager with KPMG, many companies are still unprepared. Finance directors throughout the UK should be implementing internal systems to cope with the changes which are likely to affect businesses in three ways. First, advance corporation tax, which is levied on the dividends that companies pay out, is being scrapped. Second, for the 20,000 largest companies, payments will be quarterly and based on an estimate for the current year. Finally, companies are to get their own brand of self-assessment, working out their own tax and paying it, rather than waiting for the Inland Revenue to confirm what is due. From the beginning of July, those whose accounting period ends in July will also fall under new legal obligations to keep records of their business transactions. Failure to do so will incur stiff penalties.

But, says the Revenue, corporation tax self-assessment (CTSA) represents less of a dramatic change for companies than its equivalent for individuals because, under the recently introduced 'pay and file' system, companies already have to work out their own tax. Tony Elwood, partner responsible for active tax management at Coopers & Lybrand, disagrees: 'Pay and file is more like the opening of negotiations. With CTSA, you have to decide what your liability is going to end up being. You can run the risk of penalties but, if you do the same as under pay and file, it becomes a high-risk strategy.' As McMutrie also warns, CTSA 'represents a fundamental change to revenue raising and will see a much tougher approach from the Inland Revenue'.

Part and parcel of the change is a switch of emphasis by the Revenue from calculating tax assessments to auditing returns. Under what former chancellor Kenneth Clarke called 'spend to save', it will concentrate on areas where extra tax can be raised. …

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