Finance Act 2007 changed the rules about when HM Revenue & Customs (HMRC) can open an enquiry into individuals’ and companies’ self assessment tax returns (the 'enquiry window'). The general effect of the changes is that where a return is delivered early, the enquiry window will close sooner - 12 months after the date of delivery, rather than 12 months after the statutory filing date.
This change was recommended by Lord Carter of Coles, in his March 2006 'Review of HMRC Online Services'. The intention is to remove a disincentive to early filing. It is hoped that the change will result in more taxpayers delivering their tax returns before the statutory filing date. For more information, see ‘Enquiries into Company Tax Returns’ on the HMRC website.
The rest of this note relates to corporation tax only, not to Income Tax Self Assessment. Specifically, it sets out an operational practice HMRC will adopt in relation to groups of companies.
Companies that are members of a group which is not a 'small group' in Companies Act terms are excluded from the change to the enquiry window mentioned above. So by law, HMRC will still be able to open an enquiry into the company tax return of any member of a large or medium-sized group up to the anniversary of the statutory filing date, however early the return is delivered.
However, HMRC is keen to encourage these larger companies to file early where it is possible for them to do so. We have discussed this with consultative groups and representative bodies, who have told us that it would encourage earlier filing if HMRC were able to offer an operational practice on the lines explained in this note.
Best practice in all areas of HMRC is to carry out any risk review of returns, and to open formal enquiries, where it is appropriate to do so, as early as possible within the resource and other constraints applying, and subject to programmes of work on particular sectors and compliance issues. However, while the statutory time limit for giving notice of enquiry should not normally determine when a compliance intervention is started, it gives the assurance that a company’s tax affairs are normally settled once the date is passed.
Section 96(3), (4) and (6) of Finance Act 2007 amends Paragraph 24 of Schedule 18 to Finance Act 1998 ('Para.24'). The effect is that for most companies which file their company tax return before the statutory filing date, the enquiry window will close sooner so they will benefit from earlier certainty about their tax liability. For returns relating to accounting periods ending after 31 March 2008, HMRC will have to decide within 12 months of the date of delivery of the return whether to exercise its power to enquire into the return, instead of having until the anniversary of the statutory filing date. There is more detailed information about this in the HMRC Enquiry Manual at EM1510/1511. You can access this guidance on the HMRC web site.
However, this change does not apply to any company which is a member of a group that is not a 'small group' by the definition in Section 383 of Companies Act 2006. So Para.24 still allows HMRC up to 12 months from the statutory filing date to give notice of enquiry into a company tax return for a period ending after 31 March 2008, where the company is a member, during the return period, of a group which meets two of the following three criteria:
The CT600 return form requires companies to self assess whether they are within this category or not. Where the company is a member of a large or a medium-sized group, it is required to put a tick in the ‘Company part of a group that is not small’ box on page 1 of the return form.
HMRC’s risk assessment of any company’s return must take account of the economic realities of the company’s activities. Larger groups of companies present particular tax compliance issues, which mean that we often need to review the affairs of the group as a whole. We are also able to offer better customer service by dealing with group issues together. Discussions with business and its agents have confirmed that it is helpful to all sides if risk appraisal and assurance work is coordinated across the group, and that a common enquiry window across the group facilitates this. Consultation also suggested that few larger groups are likely to be in a position to file their returns much before the statutory filing date.
Nevertheless, discussions with representative bodies have confirmed that it would be helpful to all sides if HMRC were able to put processes in place to encourage these larger groups to file early, where they are able to do so. HMRC has therefore agreed the following guidelines. Compliance assurance staff in those parts of HMRC which deal with these sorts of businesses have been told about these guidelines, and will bring them into effect in relation to relevant company tax returns.
Where it is practical to do so, our aim is to open all enquiries into a group’s returns within 12 months of the delivery of the last individual company tax return from any member of that group. In the rest of this note, this is referred to as 'the group anniversary target'.
A Ltd, B Ltd and C Ltd are the members of a group. They all have the year to 31 December 2008 as an accounting period. Their joint turnover for 2008 is £23 Million. The group’s balance sheet value is £10 Million. So irrespective of the number of employees, the group is not a 'small group' in Companies Act terms.
The companies deliver their company tax returns on the following dates:
A Ltd 23 September 2009
B Ltd 14 August 2009
C Ltd 9 October 2009
The statutory filing date for each company is 31 December 2009. So Para.24 allows HMRC until 31 December 2010 to give notice of enquiry into any of these returns. But if it is practical to do so, we will aim to meet the group anniversary target and open any enquiries into any of these company tax returns no later than 9 October 2010.
It will not always be possible for HMRC to meet the group anniversary target. Where it is not, we will continue to open enquiries as necessary, within the statutory deadline. And it remains our aim to open enquiries as early as we can and not to wait for either the Para.24 time limit or the group anniversary target.
The extent to which we are able to meet the group anniversary target in relation to a particular group will necessarily depend upon our internal organisation, and where the group’s corporation tax affairs are dealt with. Our aim is as follows:
Our Large Business Service deals with the tax affairs of the very largest companies. All such companies are allocated a dedicated Customer Relationship Manager.
Customer Relationship Managers (CRMs) will in any case seek to agree a timetable with the group tax manager for compliance assurance activities. As part of that exercise, they will seek to agree a timetable for the delivery of the group’s returns, the handling of any risks identified and the opening of any formal enquiries. Where it is practical to do so, CRMs will seek to agree a timetable that meets the group anniversary target.
Our Local Compliance Large and Complex customer group handles the tax affairs of the largest companies outside the Large Business Service. We have appointed Customer Managers (CM) to coordinate our dealings with the very largest and most complex members of this customer group.
As part of their role, CMs will want to agree a timetable for the delivery of the group’s returns, the handling of any risks identified and the opening of any formal enquiries. Where it is practical to do so, CMs will seek to agree a timetable that meets the group anniversary target.
Where the group’s affairs are dealt with in more than one location, or it would help for other reasons, CMs will discuss with the group whether it will aim to deliver its returns significantly before the statutory filing date. Where this is the case, they will ask the group to write to the CM when the last group member’s return is delivered, on the lines of the Annex to this note. Unless there are over-riding reasons not to do so, the CM will agree to open any enquiries into the relevant company tax returns within the group anniversary target.
Where no CM is in place, HMRC still provides some degree of co-ordination in dealing with larger groups. We are in the process of providing:
These officers will seek to facilitate meeting the group anniversary target wherever possible. We will discuss with the group whether it aims to deliver its returns significantly before the statutory filing date. Where this is the case, we will ask the group to write to us when the last group member’s return is delivered, on the lines of the Annex to this note. Unless there are overriding reasons not to do so, we will agree to open any enquiries into the relevant company tax returns within the group anniversary target.
The remaining large and medium-sized groups are dealt with in much the same way as smaller companies, in our local offices. HMRC is not able to offer the necessary degree of co-ordination across such groups to undertake to meet the group anniversary target in these cases.
All parties should be clear that the group anniversary target is an operational practice, not a legal requirement. HMRC reserve the right to fall back on the statutory time limit.
On the other hand, HMRC is committed to showing good faith by honouring any agreed timetable, and will make every effort to provide the necessary degree of assurance to encourage larger groups to file early where they can. An agreement cannot fetter our legal powers, but we will make every effort to meet the group anniversary target where we have agreed to do so. It should only be necessary to open enquiries after that where the group fails to honour any agreed conditions, or where material new information comes to light that was not available when the original agreement was reached.
For groups where no agreement is made to meet the group anniversary target, the statutory position will apply. This is likely to be the case for the time being for the majority of companies in groups that are not 'Large' by EU definitions. That is not a matter of policy, but of operational reality: HMRC is not able to offer the necessary degree of co-ordination across such groups to undertake to meet the group anniversary target.
This is not a mandatory template, but indicates the scope of the information HMRC should require from a group before agreeing in writing to meet the group anniversary target in relation to any group. Any group intending to file its returns significantly before the statutory filing date is invited to discuss with the HMRC office dealing with its affairs whether we are able to enter into an agreement to meet the group anniversary target.
Group accounting period: DD.MM.YYYY to DD.MM.YYYY
I confirm that all company tax returns for members of the above group for the above period have been delivered to HMRC.
I have listed the relevant group member companies below, and indicated
any whose accounting period differs from that stated above. I confirm
that these are all the companies within the group required to deliver
a company tax return for an accounting period ending within the period
in question.
Name |
Tax Reference |
AP End* |
|---|---|---|
XYZ Ltd |
12345 67890 |
|
* As group accounting period stated above, unless a different date is indicated below
The last of these returns delivered was that of YYYY Ltd, delivered to
[HMRC office] on DD.MM.YYYY.
Please confirm that HMRC intends to issue any notice of enquiry under
Paragraph 24 of Schedule 18 to Finance Act 1998 within 12 months of that
date.
Signed
(On behalf of the above named companies)
