Research and development tax credits Meeting of consultative committee 16 January 2006

Present:

HMRC

Alex Hardaker - CT & VAT (Chair)
Amelia Galloway – CT & VAT (Secretary)
Will Parker - CT & VAT
Steve Mole - ECOps
Richard Harries - Large Business Service
Steve Coad – CT & VAT
Dan Hurtley (NAO)
Nancy Park (NAO)

Representative Bodies

Sebastian Hordern (CBI )
Carolyn Fisher (CBI)
Chas Roy-Chowdhury (ACCA)
Lakshmi Narain (CIOT)
Colin Davis (CIOT)
Nigel Eastaway (CIOT)
Graham Wheeler (IOD)
Donald Drysdale (ICAS)
Ian Young (ICAEW)

Introduction and apologies

1. Welcome by Alex Hardaker. Apologies were received from Sally Littlejohns (LBS)

Matters arising from minutes of previous meeting (21 September 2005)

Application Note G to FRS 5

2. Representatives reported that discussions were ongoing.

Small Business Discussion Paper

3. Representatives expressed concern that the proposed abolition of the Starting Rate of corporation tax would mean that many clubs and other forms of unincorporated associations with very modest profits would be brought back into the tax net. HMRC explained that they had an administrative practice not to pursue very modest amounts of tax where the amount would be outweighed by the cost of assessment and collection. Therefore it was probable that it would apply to most clubs and associations so keeping them out of the tax net. HMRC confirmed that all of their operational offices were aware of the administrative practice.

R & D Tax Credits

4. Representatives reported good progress in discussions with the HMRC R & D Team since the last meeting.

Associated Companies

5. HMRC reported that a separate meeting had been held with two of the representative bodies to explore the respective points of view. While there had not been a meeting of minds, the meeting had been very helpful in deepening the understanding of the issues.

6. Representatives noted the outcome of the meeting and said while they accepted the need for rules to prevent profit fragmentation, the current definition of associates meant it was extremely difficult for taxpayers to know precisely with whom they were associated. And that in many cases the rules meant that businesses with no economic connection were treated as being associated.

CT Reform

7. HMRC said that HM Treasury were now in the lead and referred representatives to the PBR 2005 documents. These indicated that the focus of the project had shifted to international issues – particularly the implications of the EU Treaty litigation. In the short term, it was understood that Leasing Reform would be included in Finance Bill 2006.

NAO Consultation on VFM study of the Corporation Tax Process

8. NAO introduced and explained the broad aims and purpose of the study. In particular they would be inviting views on:

  • The ease of use of the CT Filing process
  • Whether the processing of CT Returns had improved in recent years
  • In what ways the HMRC service to business might be improved particularly actions that would enable customers to comply with their obligations and reduce the costs to business
  • The electronic CT Online filing service
  • Whether views of small business were different from those of large business
  • Whether there were any benefits from closer alignment of the CT and VAT filing processes.

9. After debating the proposed terms of the NAO study, it was agreed that the questions would benefit from further refinement and focusing. Subject to that a number of representatives indicated that they were prepared to participate.

Consultation on CT filing dates

10. HMRC gave a brief presentation on the purpose of the consultation process and the perceived business benefits from re-aligning corporation tax filing dates.

11. Representatives expressed a number of contrary views, including:

  • the preparation and submission of accounts for Companies House was quite separate both in substance and timing from those submitted to HMRC,
  • the proposals would not in their view be deregulatory,
  • there would be no cost savings to companies,
  • could lead to overload for small practitioners,
  • there might be some awkward issues around insolvency cases.

12. HMRC noted representatives’ views and that it was clear that they could not be explored fully within the time allotted for the meeting. It was agreed that HMRC would give thought to:

  • Visiting a small/medium practitioner to see the accounts preparation processes at first hand; and
  • A number of separate or bi-lateral meetings

CT in Practice

13. CT 600: the latest versions were now available on the internet and in paper form (via the Order Line). Other changes :

  • The guide and supplementary pages
  • CT 600 E for charities
  • CT 600 J for reporting avoidance schemes.
  • The CT 600I for ring fenced oil and gas profits would be amended in the near future to take account of the changes announced at PBR 2005.

14. HMRC proposed to issue a new form in autumn 2006 to newly incorporated companies around 3 months after being set up. The aim was to improve customer service and it would set out the HMRC view based upon the available data as to the expected filing and payment dates.

15. HMRC said that they also planned to issue a letter in late spring to recently incorporated companies that had not made a CT41G return. The aim again, was to improve the quality of HMRC data so as in turn to improve customer service.

AOB

15. None

Next Meeting

16. Late May or early June 2006.