Corporate Tax Operational Consultative Committee

Minutes of Meeting Held on 19 June 2003 at 22 Kingsway, London WC2

Present
:

1. Apologies were received from Andy White and Sally Littlejohns (Inland Revenue), Colin Campbell (ICAEW) Graham Wheeler (IoD) Donald Drysdale (ICAS) and Sebastian Hordern (CBI).

Minutes of previous meeting (22 October)

2. There were no comments.

S660A settlements

3. The ICAS had asked for this item to be put on the agenda. They felt that there should have been more consultation and greater consideration given to the legal position in Scotland. The Tax Bulletin article was creating difficulties by raising fears that some people would have to unscramble their affairs to comply with the Revenue view. It was suggested that some of the examples were wrong.
4. The Revenue said the Tax Bulletin article was prompted by requests for guidance on the Revenue position. It was not intended to be a consensus view nor was it the start of drive to clamp down. There had been less than 100 enquiries on the issue over the last year. The article was only intended to clarify the Revenue's position. It had been seen by CIOT (whose views differed from the Revenue) and their comments had been included in the article. The examples used were based on actual cases.
   
   

IR 35

5. The ICAS had asked for this item to be put on the agenda. Concern was expressed about the length of time in which accountants have to decide whether a client is subject to these arrangements. In practice they can have as little as 14 days whereas the Revenue took anywhere between 5 and 12 months to make a decision. The Revenue requested further evidence in the form of a profile of how long cases took to resolve.
6. The Revenue also pointed out the client's tax affairs could be reviewed at any time during the tax year - so the 14-day period was not the whole picture. However, the Revenue acknowledged that 12 months to resolve a case was too long. Consequently, the Revenue offered to look at how long status officers were taking to resolve cases. It would also be necessary to identify whether a lack of staff or technical problems were causing the delays.
   
   

Negligible value claims (s.24(2) TGCA 1992)

7. The ICAS had asked for this item to be placed on the agenda. They wished to have a report on progress following a meeting in April with Revenue officials. They that felt as the issue was first raised in May 2002 the delay seemed excessive.
8. The Revenue had not yet received legal advice and apologised for the delay which was due to Budget pressures. The Revenue undertook to press for an early response
   
   

Review of Links with Business

9. The updated Action Plan is to be published shortly. The Revenue were unable to discuss it until it had been published but were willing to take comments from those who have seen the draft. There were no comments.



Budget measures

10. There were no specific issues on Budget measures but representatives were concerned about the guillotining of the Finance Bill debate. It was felt that this year there were some significant measures, which did not receive full and proper parliamentary scrutiny. The profession said they made their budget responses in addition to their normal work so if was there were to be no effective debate then apathy might well creep in. It was also thought that if there were to be inadequate parliamentary scrutiny then the legislation should be consulted on before the Finance Bill.
11. Concern was also expressed about the nature of some of the Finance Bill changes. In particular, certain amendments were made to legislation that had recently been simplified under the Tax Law rewrite programme. But those changes were made in the old style, which seemed less than sensible, and this undermined the credibility of the Rewrite process.
12. The Revenue said they were aware of concerns over the shortened Finance Bill process but that they had no control over either the manner in which legislation was drafted (wholly at the discretion of Parliamentary Counsel) or the Finance Bill process which was a matter entirely for Parliament. The Revenue agreed to relay the views expressed to those responsible for reviewing the Finance Bill process. The Revenue said that it preferred to consult on new legislation but this was not always possible.
    
    

CT Reform

13. Representatives expressed concern that current legislation was too complex, too uncertain and affected business' willingness to invest in the UK. They wanted to participate in the CT Reform process, as it was important that changes were business friendly and took into account International Accounting Standards (IAS) that are to be introduced in 2005. IAS was perceived to be a potentially difficult area - fine in theory but not so in practice, for example, annual property revaluations. The Revenue is aware of the issues relating to IAS; it is just one aspect of CT Reform. The Revenue said they would be very pleased to receive representations on CT Reform during the next stage of consultation.
    
    

CTSA in practice

14. The Revenue reported that data from Companies House suggests there were 321,741 incorporations, up 40% on the previous year (01.04.02 - 31.03.03). And the rate appeared to be accelerating. . The Revenue said it was monitoring the rate of growth with a view to the best allocation of its resources.
15. Representatives felt this was as a direct result of the zero rate of CT. Despite constraints on limited liability (because owners often have to offer personal guarantees) and more regulation, people were being encouraged to incorporate because of favourable tax rates. The rate of incorporation will continue to increase as people explore the zero rate. The profession had identified abuse - where the company is liquidated and as gains are covered by personal exemption no tax is paid. The Revenue suggested S703 as a remedy, but the cost of such an approach would likely exceed the tax at stake. The profession did not have a solution but would not like to see the exempt amount for capital gains taken away.
16. The Revenue asked if there were any common errors encountered by those who are incorporating, or perhaps a need for education, for example, in respect of PAYE. There were not many tax-related problems from incorporation. These are usually planned and so there was no need for education.
17. Representatives asked if companies who fall into the zero rate of corporation tax would have to render a CT return. They were aware some clubs no longer have to file returns annually. They also felt pension funds and trusts should be allowed to complete a simpler return by ticking boxes instead of the current form, which is seen as a burden. The Revenue explained that there were no plans to extend the relaxations on filing requirements to all companies. They would continue to explore the possibility of introducing a simplified Return.
18. Representatives were interested to know how companies are coping with quarterly instalments payments (QIPs) and in particular how much had been overpaid. The Revenue said they were not aware of any penalties being imposed and confirmed that they were not actively seeking to levy penalties in respect of QIPs. There have been some overpayments but these amounts were not significant.
19. Representatives raised the issue of the associated companies' rule. There are two concerns - the definition and the ability to transfer unused limits to other associated companies. The Revenue said they were aware the system was not perfect on the other hand it was a straightforward rule and was simple to apply. The Revenue said that if examples of where the rule was not working effectively could be identified, then it would be prepared to have another look. Equally, a barrier to changing the system would be the identification of a replacement, better system. In the Revenue's view, there was no simple solution and the profession needed to indicate how important this issue was in relation to other changes being requested
    
    

CTSA late filing penalty process

20. The Revenue had automated the system for issuing late filing penalties for CTSA. Until to June 2003 a penalty warning letter was issued when a return was late but normally no penalty determination was made until the return was delivered, even when that return was very late.
21. The process was automated from June 2003. The visible change for customers is the inclusion of a penalty warning with the filing reminder and the issue of a flat rate penalty determination instead of a warning letter, if the return is not delivered on time. Automating the penalty process ensures that penalty determinations are issued shortly after the penalty has been incurred. Certain cases will automatically be inhibited and Inspectors can use inhibition for other cases to avoid inappropriate issues of penalty determinations.
22. Representatives asked about the level of late filing penalties for CT returns (see annex A (PDF 87K)) Also, they were concerned that companies with overseas activity who have an extension for filing may be sent penalty notices wrongly. The Revenue explained that Inspectors could override the system where necessary. Companies needed to notify the Inspector when they intended to have a longer accounting period than usual so that the filing dates could be amended.
    
    

CT Work out of London

23. In June 2003 the Inland Revenue began a process of moving several thousand Corporation Tax records out of London to offices around the UK. The bulk-transfer process will continue over the next few months. Wherever possible new offices have been chosen on the basis of an existing connection, for example, the PAYE scheme is dealt with there already. However, it is not always possible to identify a connection and in those cases distribution has been matched to available resources. The majority of relocated cases will be accommodated in the North of England.
    
    

CT e-filing

24. A trial of e-filing of company tax returns has recently been completed and the results of the trial are being reviewed with feedback from it being analysed. About 120 returns were filed, mainly using the Revenue's on-line CT600. A minority used third party software. The mechanism for e-filing comprised an XML CT600 plus PDF accounts, computations and other attachments - submission of an electronic CT600 with paper attachments following does not constitute delivery of a return.
25. The Revenue will reject Returns filed partly electronically and partly on paper. Advisers will be invited to submit the Return again in one format. A delegate asked if e-filing satisfied the filing requirement. The Revenue advised it did but, just as with paper submission, if a return is subsequently found to be incomplete the filing will not be valid and the return will be sent back.




XBRL

26. The Revenue is working with leading software developers on XBRL. This is a development of the XML standard. XBRL is a financial reporting standard that is being developed globally. It facilitates the tagging of financial data, which enables that data to be transferred in an intelligible format.
27. Tax computations and eventually accounts will be compiled using XBRL as projects to develop taxonomies of financial terms are completed. The Revenue has developed a taxonomy suitable for filing tax computations. The ICAEW is working on a taxonomy that links to the UK GAAP. The Revenue will be able to receive computations in XBRL from October 2003 and plans to extend this to statutory accounts in 2004.



Reports from other fora

28. The LBO Large Corporates Forum met in late November 02 and is due to meet again in late July. The minutes of November meeting are on the Internet. Issues discussed at the meeting were Links with Business Recommendations 18, 6 and part of 4, also a talk by the Revenue Specialist on Land Remediation Relief about removal costs of Japanese knotweed and a brief update on e-services for CT.




CT600 return

29. Representatives asked when the re-versioned CT600 would be introduced, which accounting periods would it apply to and would it be backward compliant. Also they asked if it were possible to see the latest version of the CT600. The Revenue is currently developing version 2 of the CT600. It should be possible to send a draft to CTOCC members in the Autumn. The re-versioned Supplementary Pages will follow as soon as possible. After version 2 goes live, customers will still be able to use the version 1 form if it contains everything they need.

CTSA enquiry framework

30. The CTSA Enquiry Framework was launched 6 months ago. Enquiry teams have been issuing a copy of opening letters to Company Secretaries during the trial period. As part of the feedback the Revenue asked for any comments. Representatives' clients had not yet received any letters under this trial.




Next meeting

31. The Chairman expressed appreciation that delegates, particularly those from outside the Revenue, gave up their time to attend the meeting and enquired if there was need for a separate CT forum or could the business be conducted through other fora. The representatives felt that with CT reform and e-services for CT there was as a need for a CT forum to meet as the need arises. It was agreed to plan for a meeting in January 2004, although this can be cancelled if there are not enough items for the agenda.