Corporate Tax Operational Consultative Committee

Minutes of Meeting Held on 15 October 2002 At SW Wing, Bush House, London WC2

Present
:

Inland Revenue	Representative bodies
Alex Hardaker - Revenue Policy (Chair)	Colin Campbell (ICAEW)
Mark Bravery - Revenue Policy (Secretary)	Colin Davis - CIOT
Ben Aldred - Revenue Policy	Nigel Eastaway - CIOT
Henry Asenso - Revenue Policy	Carolyn Fisher - CBI
Jane Ashton - Business Services	Mukesh Gunamal - ACCA
Steve Batterby - Revenue Policy	Lakshmi Narain - CIOT
Steve Coad - Business Services	Graham Wheeler - IoD
Mike Harmon - Service Delivery Support
Dick Medland - Large Business Office

Introduction and apologies

Apologies were received from Ann Brownlee, Barry Farbon and Sally Littlejohns (all Inland Revenue), Donald Drysdale (ICAS) and Sebastian Hordern (CBI).

Minutes of previous meeting (17 July)

There were no comments.

Review of Links with Business

The Action Plan had been published on the Inland Revenue website. The Revenue reported on a number of specific points.

A working group set up to take forward Recommendation 33 (pre-filing discussions with inspectors about Controlled Foreign Companies) had published its report in early September. This made explicit what had been widely accepted in practice;

The pilot on `faster working' (Recommendation 6) was under way, involving 17 cases dealt with by the Large Business Office (LBO). These were at different stages. Framework documents were now in place, and business presentations taking place. Some pre-filing issues had been raised, but generally the pilot seemed to be working well. However, an appraisal of whether all issues had been fully dealt with could only be made once all the returns had been received;

The Business Tax Forum (Recommendation 18) had met, but was still at an embryonic stage;

Representatives from Revenue Policy had been allocated to each LBO industry sector (Recommendation 21) ;

The Revenue were scoping the various consultative forums, and considering these internally, with a view to improving overview and communication (Recommendation 17).

Associated companies and ESC C9

Representatives had asked for this item to be put on the agenda. The Revenue explained that the House of Lords judgement in the Newfields case last year had confirmed the Revenue's view of the law on company control. But the case had raised the profile of this legislation. This encompassed two main principles of control - economic (as within groups) and persons taken to control companies irrespective of whether economic control exists.

Representatives said that the underlying policy meant that it was very difficult to complete some CTSA returns, because a member of a large partnership would not necessarily know of the existence of companies controlled by the other partners. The Revenue said that they recognised the difficulty but pointed out that the return was to be completed only to the best of a person's ability. In addition, each associated company did not have to be identified by name, only the number was required. Some representatives thought that even this was an unreasonable requirement, since these could all be independent businesses. It was suggested that guidance would be helpful in this area, and the Revenue said they would be happy to consider how this might be done. It would also be useful for the Revenue to receive evidence of how the rules created real practical difficulties.

Representatives mentioned practical difficulties where companies were in different jurisdictions, and added that the existing extra-statutory concession C9 seemed too narrow. They suggested that the associated company test should reflect only cases where there was genuine commercial inter-dependence. The Revenue replied that the legislation was intentionally broader than a test related solely to commercial relationships and was never intended to be that narrow. But they were looking at C9 as part of the current work.

Representatives questioned whether the policy of bringing in investment partnerships was still correct and suggested that the present rules followed too much of a broad-brush approach. What mischief did they address?

One representative suggested that unused marginal reliefs should be available for use by associated companies, perhaps by some form of notional management charges deemed to be passed between companies. Alternatively, the profits might be aggregated to determine the relevant rate or amount of marginal relief. The Revenue said this could not be easily done, for example where companies were associated outside a group structure - so that company A might be associated only with company B, but company B more than just company A. Reallocation of allowances would be complex.

The Revenue concluded by saying they accepted the legitimacy of concerns in some extreme cases. But if the rules were relaxed too much, companies would find ways of getting round them. A balance had to be struck between the clarity and simplicity of the current approach and an alternative inevitably complex approach that would probably rely upon more subjective judgements based upon the same information.

Quarterly Instalment Payments and Group Payment Arrangements

The Revenue said that the guidance on estimating profits in-year, which had been published in June, had generally been well received. Some representative bodies were still pressing for a Previous Year basis of calculation, but Ministers had firmly opposed this in the past. One representative thought questions and answers on the Revenue website were helpful. The Revenue said more such guidance could be provided. The Revenue recognised that there were some issues around GPAs where companies were in receivership.

Representatives also said a shift in the quarterly payment date would be helpful - the 14 days between quarterly results being available and the payment date were insufficient. The Revenue said this was a matter for Ministers, as any change would require legislation. And there would be Exchequer cost implications. Representatives mentioned the costs associated with estimating profits. The Revenue said that the CT compliance cost survey had looked at this, but the report was still being considered by Ministers.

Compliance costs for small companies

The Revenue said that the introduction of the zero rate of CT raised questions about whether CTSA returns could be simplified or whether they should be made at all . Would it be advantageous for these companies not to have to file a return?

Representatives thought that if there were no obligation to file a return, the obligation to notify any liability would still remain. In their view the completion and submission of the return helped to provide certainty. Companies within the zero rate might still want to file a return, for example to claim losses, group relief or capital allowances. The design of the current CTSA return was more of an problem for clubs and associations which usually had a single source of profits, a lot of which would now be covered by the zero rate band. These could be relieved of the obligation to file, with very little tax put at risk. But small trading companies might be best advised to file returns - although the managers of these companies might not agree!

The Revenue asked whether, if certain companies were relieved of the filing obligation, this would significantly reduce compliance costs. (Over 90% of companies did not prepare their own accounts.) Representatives thought that there would not be much of a saving. Agents often discount tax work, so that if no tax is due there is a reduction in the fee. Once the accounts had been prepared, a computation was needed to find the tax position - but it was sometimes possible to tell from the accounts that there would be no tax due.

The Revenue said that they used data from tax returns to assess risk (and to cost possible changes). If the filing burden were reduced, this could lead to more enquiries. At present, less than 1% of company accounts received in the network are enquired into - so the present regime represents a light touch. Fewer returns might mean more random enquiries. Representatives recognised that costs and risks needed to be balanced. But they thought it might be simpler just to carry on issuing returns. Most CT was paid by large companies, and the areas where most tax is at risk are dealt with by the LBO.

CTSA in practice

CTSA enquiry framework

The Revenue reported developments on the introduction of an enquiry framework for CTSA. There was a read-across from the existing ITSA framework. A special meeting of CTOCC representatives had been held on 25 September to discuss this, and to revise a draft working document. This had been a productive meeting, and various points had emerged.

It had been agreed that the time to deal with correspondence should be flexible. But the Revenue would continue to try to turn round correspondence within 30 days. The opening enquiry letter would be copied to the company secretary for a trial period of six months (along with the statutory notice). The Revenue would produce some standard opening letters. The question and answer leaflet, used for ITSA enquiries, would be adapted for CTSA purposes. And the Revenue's guidance on seeking an early meeting would be rewritten, with a focus on getting the right people to attend (who may or may not include the agent - the client would be involved in the decision).

Finally, the Revenue would set out the circumstances in which directors' personal information would be requested (a close company issue). The Revenue could not guarantee directors' immunity from enquiries for the relevant period. The company and the director were separate taxpayers and subject to separate risk assessment processes. But there would be no automatic `window' for an enquiry into a director should the company enquiry have failed. Enquiries should be opened only on the basis of risk. The Revenue would monitor selection of cases for enquiry through quality checks.

Representatives thought there might be parallel enquiries into company and director, with the latter continuing after the former had closed. It would be difficult to enquire thoroughly into a company without looking at the directors. The Revenue said it was unusual for the director aspects to be fully considered during a company enquiry. There would be no re-enquiry as a matter of course.

The Revenue hoped to get something into the public domain by early December - through the Working Together forum and published internal guidance. Comments from both the CBI and FSB had been received and taken on board so far as possible.

Communication with companies

It had been generally accepted that opening letters should be copied to companies. But to whom should it be sent? The statutory position was that the proper officer of a live company was its secretary, and the Revenue had to follow this when sending statutory notices. But for some larger companies, the tax department seemed a more obvious choice. Some LBO offices had developed pragmatic approaches in this area. And there may be other reasons why the secretary was not the appropriate person.

Representatives suggested an amendment to the legislation (s.108 TMA) so that a company could elect to have an alternative recipient. The Revenue said there was no great inclination to revisit the legislation - issues had been fully aired during the introduction of CTSA. The FSB had suggested that correspondence should go to the company secretary's home, while the CBI preferred the tax department of large corporates - an illustration of the lack of consensus. One representative thought that sticking with the company secretary (at the registered address) had the advantage of producing certainty - and would virtually guarantee receipt in every case.

It was agreed that more would be known after the six-month trial, which would commence in December. But this may not catch many of the companies with 31 December year-ends - enquiries for which would not generally start until about May. The Revenue said that a range of different companies would be within the trial. A consistent approach was needed across a diverse population.

CT600 return

The Revenue reported that the 2002 return form had now gone to the printers. It would be published on the website in due course, and be available through the usual suppliers. The new form would be issued to companies from November.

The supplementary pages would be finalised soon. The CT600E (charities) and CT600I (ring-fenced trades) were being checked. The CT600H (cross-border royalties) was still being worked on, but should be finished by the end of October.

A re-versioning of the form was due in 2003. This would get rid of anachronisms and rationalise box numbers. The work needed to be finished by April. The Revenue would like to set up a meeting with representatives to discuss the changes, possibly with a follow-up session. Names and contact details of nominees should go to Steve Coad. Finally, the Revenue mentioned that the release of the marginal relief calculator on the website was imminent.

E-business

The Revenue reported that the viewing of liabilities and payments, introduced gradually from last December, had been extended to all companies in August. A trial for agents had begun in May, and been opened to all from August. The trial had facilitated a cleaning-up of the Revenue's database. Users had to register through the government gateway - for agents a 64-8 (form of authority to act) was needed. GPAs could be viewed from October. This will be trialled with a hundred companies within GPAs - access will be through the nominated company's UTR. The liabilities and payments system will be advertised in the New Year through the trade press and Financial Times.

The collaborative workspace trial was about to start, involving three or four companies. The company, Inland Revenue and agent would all have access. This would allow real-time working. E-filing of CT600s would be trialled probably in February or March 2003. Companies would be able to file their returns by e-mail, with accounts and computations attached as pdf files. Details of companies wishing to participate in the trial should be passed to Jane Ashton. In the meantime, the Revenue were working with software suppliers, and developing the XBRL schema for computations.

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

The ICAS had asked for this item to be placed on the agenda. They had asked if there had been a published change in Revenue practice on accepting claims by letter. The Revenue confirmed that where a notice to file has been issued, the claim could be made in the return, by a letter attached to the return, or in a letter amending the return. They would accept claims by letter, and so there had been no change in practice. It was not the case that claims would only be accepted on the face of the return form. A claim would be treated as an amendment to the return if it were made in the amendment window.

Reports from other forums

Business Tax Forum

The first meting had taken place on 23 September, and a brief written report had been circulated to CTOCC members. Three sub-groups would report to the BTF. The relationship between these was still being thought through.

LBO Large Corporates Forum

This had not met since the last CTOCC meeting. It would next meet on 20 November.

Date of next meeting

This was agreed as Wednesday 22 January 2003

Home

Top