Corporate Tax Operational Consultative Committee
Minutes of meeting held on 19 February 2004 at 22 Kingsway, London WC2
Present:
Inland Revenue |
Representative Bodies |
|---|---|
Alex Hardaker - Revenue Policy
(Chair) |
Sebastian Hordern - CBI |
| Kathy Prior – Revenue Policy (Secretary) | Donald Drysdale - ICAS |
| Mike Harmon – Service Delivery Support | Graham Wheeler - IOD |
| Ruth Paynter – Business Services | Colin Davis – CIOT |
| Richard Harries - Large Business Office | Nigel Eastaway – CIOT |
Introduction and apologies
1. Apologies were received from Mukesh Gunamal (ACCA), Graham Black and Sally Littlejohns (both from Inland Revenue).
Matters arising from minutes of previous meeting (19 June 2003)
S660A settlements
2. There has been further correspondence between the CIOT and the Revenue. CIOT had provided examples in November 2003 and are still awaiting reply. The Revenue have already suggested a meeting to discuss and are awaiting confirmation of a suitable date.
IR 35
3. Representatives asked about rumours that IR35 was to be abolished. The Revenue had no knowledge of IR35 being abolished and could only speculate where such a rumour might have arisen.
Negligible value claims (S24(2) TGCA 1992)
4. The Representatives present were unsure of where things were on this and wanted an update. The Revenue are still awaiting legal advice, requested last June.
Other Fora
5. The Large Corporates Forum last met in December 2003 and the minutes are now on the Revenue website.
Agenda items for February 2004
Associated Companies rule
6. Representatives are concerned that the associated companies' rule is unenforceable in the case of large professional partnerships. A change to the rules to exclude those with no commercial connection should be considered. Such a change could follow the directing powers held by Customs for VAT registration purposes. Also with the advent of domestic transfer pricing, groups will lose the ability to allocate profits around the group by way of management charges. Therefore, it would be desirable, if the rules could be changed, to allow groups to apply the limits more flexibly.
7. The Revenue explained that the current rules whilst not perfect are well understood and relatively simple to operate. The sort of changes being contemplated were well beyond the scope of an extra-statutory concession. Therefore it would be necessary to legislate any changes and demand for space in the Finance Bill was fierce. But the Revenue were willing to listen or to look at any proposals from representative bodies.
Application Note G to FRS 5
8. The ICAS had asked for this item to be placed on the agenda. There are widely differing views on this issue in the accounting press. The Revenue are waiting for the profession to come to an agreed view and are happy to meet to discuss further. ICAEW intend to publish their view in March.
PBR measures - 5.91 Owner Manager
9. Representatives felt the tax position of a business should broadly be the same regardless of form (whether or not incorporated) and businesses should be able to choose the appropriate form. The impact of the 0% rate of corporation tax should have been obvious when it was introduced. They considered that a proper review is now needed to consider the basis of taxation, whether there should be a level playing field and if profits from own labour should be taxed differently from profits arising through the labours of others ie via employees.
10. The Revenue explained there had been no deliberate policy intention to encourage businesses to incorporate. The Government had introduced measures that have benefited the corporate sector (such as abolishing payable tax credits and ACT, also introducing R & D tax credits and the intangible regime). Tax and NIC matters are only two of a very wide range of commercial considerations that had to be taken into account in deciding whether to incorporate. The Government was considering a number of different options – but the final option would not be announced until Budget Day.
11. Representatives were disappointed with the lack of consultation as this would only lead to continued uncertainty for business. Such uncertainty would slow down the economy as companies focus on running the business instead of obtaining new business. People run business for the medium to long term and so need the confidence to plan. Representatives felt it would be quite wrong if any changes went back 3 or 6 years. They would prefer consultations on the pros and cons of measures, without which any behavioural assessments are not likely to be good.
12. The Revenue said they would relay the representatives' view on consultation to Ministers but said that ultimately the decision lay with Ministers. The Revenue said that it would be helpful to receive representatives’ views about the potential issues and costs that might be caused by changes to the taxation of small limited companies. Representatives mentioned the difficulties and costs of:
- ids-incorporation,
- cashflow,
- professional fees,
- of new stationery, advertising, phonebook entries, amending contracts etc; and
- costs of transition.
PBR measures - Other
13. The Revenue expressed their gratitude for the help and support received during the consultation on UK transfer pricing.
CTSA in practice
Company Incorporations and Form CT41G
14. The Revenue explained that there was to be a change in the way that newly incorporated companies are set up on the Revenue computer system and this will impact on company formation agents. Currently, Companies House provides the Revenue with details of new companies but these have not been put into the system until there has been evidence of the companies becoming active. This means that it has been possible for some companies to trade and to be dissolved without ever being put on the Revenue’s systems. From 01.04.04, the Revenue will set up the companies on the computer system as soon as the notifications come through from Companies House. Contacts will be maintained with formation agents over dormant companies. An announcement will be made about the change.
CT600
15. The new version of the CT600 and short return should be ready for the autumn. This is later than planned and was due to a delay in finalising the guidance notes. The new date will allow any Budget 04 changes to be made. The form has been reviewed, renumbered and some obsolete parts removed. CIOT said it would be very helpful if the new form could be published in September. The Revenue said they would do their best but could not promise, as it would depend upon the complexity of any changes needed consequent to the forthcoming Budget.
E - CT - Liabilities and Payments:
16. An interest drill down facility was added in the late autumn, which was felt to be very helpful by representatives. The group services view has been delayed, but it is hoped to have this available in the summer.
E - CT - E-filing:
17. The E- filing trial was successful and since it ended in summer 03 the service has been available on the Internet for all companies. An advertising campaign began in early February 04 to encourage companies to use the Internet both for filing and to view their liabilities and payment details. Since the late autumn companies have been able to notify a change of AP when they e-file. From October 2004 it will be possible to file company accounts and computations in XBRL. The Revenue’s computation taxonomy is well on the way to completion as is the work by the Accountancy profession on XBRL accounts.
Euro Change Over
18. Although no date has been set for the UK to adopt the Euro, preparation work has started. Plans need to be in place to deal with the transitional period between joining the Euro Zone and Euro cash becoming available. The Revenue is considering how to support SME employers who wish to operate their payroll in Euros during this transitional period, perhaps by offering software to perform dual currency calculations. Large companies already have multi-currency accounting. Would companies and advisers want to file returns in dual currency?
19. Representatives felt the Revenue should help SMEs with the Euro change over. They asked about lessons learned from other European counterparts - these may not be relevant as the banking systems are different. They felt there could be some problems with accounting periods that straddle the introduction of the Euro, including valuation and payroll issues, if a snapshot could not be obtained on Euroday. Representatives had no enthusiasm to go further with the Euro at this point as any referendum is at least two years away.
AOB
20. CIOT raised the issue of ECJ decisions, a cross border CT system has not been possible with 15 members and the planned expansion to 25 members makes agreement on a common framework less likely. There is concern that the ECJ is enforcing a common system by the back door. The UK should have fundamental freedom to defend against decisions where it is necessary to protect revenue. Also measures are being agreed using qualified majority voting which means changes can be imposed that the UK have voted against.
21. The Revenue agreed that tax issues arose on a number of fronts – and that it was difficult to assess the direction of travel on a number of issues and the approach to be taken by the commission and the ECJ in particular. However, these issues were not appropriate to CT OCC and representatives were referred to the CT Programme co-chaired by Trevor Evans (Business Tax) and Mike Williams (International).
Next meeting
22. It was agreed to hold the next meeting in May.
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