Corporation Tax Operational Consultative Committee
Minutes of meeting held on 21 September 2005 at 1 Parliament Street.
Present:
HMRC
Alex Hardaker – CT & VAT (Chair)
Kathy Prior – CT & VAT (Secretary)
Will Parker - CT & VAT
Steve Mole – Operations
Ruth Paynter – CT & VAT
Richard Harries - Large Business Service
Representative Bodies
Sebastian Hordern - CBI
Chas Roy-Chowdhury - ACCA
Colin Davis – CIOT
Graham Wheeler - IOD
Lakshmi Narain – CIOT
Jackie Latham- ICAEW
Introduction and apologies
1. Apologies were received from Carolyn Fisher – CBI, Mukesh Gunamal - ACCA, Derek Allen – ICAS, Donald Drysdale - ICAS, and Nigel Eastaway – CIOT.
Since the previous meeting of CTOCC the Inland Revenue had merged with HM Customs and Excise to become HMRC. Under the reorganisation, Revenue Policy Business Tax has become part of the CT & VAT Product and Process Group. Its principal products are legislation and guidance and the process - CTSA. Will Parker was introduced to the group as having responsibility for the CTSA business process.
Will explained the new merged department has a number of objectives - (1) closing the tax gap, (2) improving the customer experience, supporting business and reducing the compliance burden (3) securing efficiencies (4) meeting Ministers' policy requirements. Working with others, Will is charged with ensuring that the process works as smoothly as possible for both customers (and their agents) and HMRC staff. He has a team responsible for the computer system used to assess and collect CT and another team responsible mainly for process improvement. There will be a need to consult on those improvements affecting customers directly, and Will felt CTOCC could be used as starting point for that. There may be things to bring to the next meeting.
Matters arising from minutes of previous meeting (26 January 2005)
HMRC Bill - Formal consultation
2. Following the Commissioners for Revenue and Customs (CRC) Bill to create HMRC, a major review of the powers, deterrents and safeguards that underpin the new department was launched. As part of the review, a Consultative Committee (including tax experts, business representatives, QCs and others) has been set up. The review is expected to continue beyond 2007 and work is currently underway on legislation, which may be included in the 2006 Finance Bill. Also available are the minutes of the Consultative Committee meeting.
Other Fora
3. The Large Corporates Forum (LCF) met on 21 July when they discussed ‘tax on the boardroom agenda, the place of the LCF in the new Large Business Service and the role of the client relationship manager. The minutes from the LCF meeting are available on the HMRC website.
Application Note G to FRS 5
4. UITF 40 was issued on 10 March 2005.
5.95 Small Businesses discussion paper
5. Representatives asked about the next steps. HMRC reminded the meeting that the Treasury were in the lead on the Small Business Taxation Project. HMT are currently considering the responses to the discussion paper and may make a statement at either PBR 2005 or Budget 2006.
Veltema
6. Representatives are concerned that HMRC say taxpayers should submit minimum data with their return but this may leave the returns open to enquiries several years later. HMRC explained that not all returns were enquired into and supplementary information could be supplied if the return was selected for enquiry. Where valuations has been done on a fair market value, enquiries should not be opened outside the normal enquiry window. However, if representatives are still concerned CTOCC will pass the concerns on to the working group.
R & D Tax Credits
7. There was a concern about the consistency of application of the legislation by HMRC officers. HMRC explained that there was a tension between the scientist and the tax inspectors in deciding what is new and novel. HMRC do not have a panel of experts in R & D. However, a live discussion paper is available at www.hmrc.gov.uk/randd, which asks for views on this issue.
8. Representatives suggested that cases could be fast tracked to the DTI panel which it uses for R&D grants. Also, they said that as small and medium companies are not always sure what would qualify as R & D, obtaining clearance before the project would provide certainty. HMRC pointed out that it might not be possible at the outset to say how much of the project would qualify for relief. In addition, reference to an expert panel could slow down the processing of claims and others had already expressed some concerns over the speed at which claims by new companies were being processed.
9. Separate discussions have taken place with those in HMRC responsible for R&D tax credit policy with the aim of setting up a sub-group to look at R&D tax credits. This is progressing well and a first meeting is being planned.
Associated companies
10. Representatives wanted to know the position following the HOL decision in the Wilkinson case. HMRC explained that the case has confirmed that they cannot use concessions to disapply the law so going against the wishes of Parliament. In addition, the Newfields case supported the Revenue authority’s view of the scope of control legislation. Therefore, there is no scope to relax the provisions by way of ESC or statement of practice. The current ESC C9 would need to be considered in the light of Wilkinson and possibly legislated. However, if that was the case, it was not always easy to obtain space in a Finance Bill.
11. Representatives felt that there should be room in the Finance Bill to enact the existing ESC C9. They cited the difficulties for some taxpayers in establishing the number of associated companies and felt that this could be addressed. HMRC pointed out that Ministers agree there are some rough edges but they wanted simple hard-edged rules, not rules based on economic interest.
12. HMRC said that before changes could be considered, sufficient evidence of difficulties would be needed. Such evidence had recently been requested from a number of representative bodies but without eliciting any real data to support their case.
Agenda items for September 2005
Group Payment Arrangements
13. The CBI raised the issue of Group Payment Arrangements. Under the existing rules, any additional companies must be brought into the arrangement before the first instalment date for the period of account. However, this can be restrictive and they would like to see the rules changed to allow additional companies to be brought in at any time up to the last instalment date for that period.
14. HMRC explained that Group Payment Arrangements were not envisaged when the Instalment Regime was introduced. They were only created after businesses asked for the facility. The current standard contract was devised after extensive consultation and discussions. There is no evidence to suggest the contract is causing difficulties and any changes are likely to be problematic. One possible solution may be for companies to make use of section 102 of Finance Act 1989 as extended by regulation 9 of the CT (Instalment Payment) Regulations 1998. However, HMRC will reconsider if there was sufficient evidence to indicate the need for change.
Business Asset Taper Relief
15. The CIOT were concerned that there was some inconsistency in the rulings on whether business asset taper relief in relation to shares, from local area offices. One inspector was reported to have said that she had received instructions from Head Office to challenge all companies where there is a lot of cash on the balance sheet. CIOT wished to know if inspectors had separate unpublished guidance and whether all requests could be dealt with by the Business Tax Clearance Team to ensure a consistent approach.
16. HMRC said that Head Office specialists' advice always reflects the guidance at CG17953p. That statutory test requires there to be a non-trading activity and for that activity to be substantial. The guidance suggests some indicators that may be useful in answering these questions and clearly states that relevance of these will depend on the circumstances of the company being considered.
17. Inspectors have certainly not been asked to challenge all large holdings of cash. HMRC think that it will often be the case that a reserve of undistributed profit on deposit could not be said to constitute an activity in itself. However, there may be an investment activity where the amounts involved are significant relative to the trading activity and are held over a long term.
Additional factors to consider might include:
- the present and future cash flow requirements of the business,
- the nature of the underlying investments used as a lodgement for the funds,
- the extent to which these investments are managed, and
- whether the funds have been ear-marked for a particular use in the trading activity.
CT Reform
18. This agenda item had been put forward by ICAS. HMRC said that a Technical Note included several proposals for reform including reforming / simplifying the scheduler system of tax for companies was issued in December 2004. Some consultation meetings followed with business in early 2005. Ministers are considering the responses to the proposals in the wider international context in which the CT system operates.
CTSA in practice
CT600
19. The revisions arising from Budget 2005 for the CT600 will result in five new boxes – four in connection with business premises allowance and one for ring fenced instalment payments. The new forms and guide are due out Oct 05.
CT - Online
20. E filing using XBRL is being tested and HMRC should be able to accept documents in XBRL from mid-November 2005. HMRC are investigating providing an easy computational form for SMEs. Electronic authorisation for agents to act will be available from November 2005 and from 2006 agents will be able submit online returns in the absence of a form 64-8.
Compulsory notification of commencement of business by new companies.
21. The new form CT41G has been in use for the last 2 months.
AOB
22. Representatives were concerned about materiality. They were not clear in what circumstances an inspector would seek to open a past period if a figure had been amended on the return. HMRC said that their accounting specialists were meeting the ICAEW to discuss materiality and how it interacted with tax in October. Therefore, concerns should be raised at that meeting.
Next meeting
23. It was provisionally agreed to hold the next meeting in January 2006.
