COM122030 - Repayments / reallocations: non automatic reallocations: surrender non COTAX repayment to COTAX
This subject is presented as follows
Notice of surrender given more than 18 months after the AP end |
General
Groups of companies can minimise their exposure to late payment interest (Word 27KB) (LPI) for CT Pay and File APs and CTSA APs by surrendering potential repayments between group members. Companies will usually make the joint notice of surrender to the Inspector dealing with the affairs of the surrendering company. He / she is responsible for determining the validity of the notice.
When the repayment is of CT for a CT Pay and File AP or a CTSA AP, the Inspector dealing with the surrendering company should give effect to the surrender using Function REWD (Direct Reallocation Within COTAX).
When the surrendered amount is one of the following, the Inspector dealing with the recipient company must make the set-off using Function DSET (District Set Off)
- A repayment of income tax, including CIS25 tax
- A payment of tax credit
Where the surrendered amount is held on a SAFE record, the Inspector must complete a SAFE Repayments stencil (SAFE 1) and give it to their SAFE user who will set the ‘No Repayment’ signal on SAFE if necessary and send the form to the SAFE team at Accounts Office Shipley to reallocate the amount to COTAX.
In practice, the two Inspectors will often be the same person. But, sometimes they will not even be in the same office. The Inspector accepting the notice may not have access to the computer record of the recipient company.
In such cases, the Inspector who accepts the notice must send a memo on the same day to the Inspector dealing with the recipient company giving full details of the surrender.
Giving effect to the surrender
If you accept that the surrender is valid use either Function DSET, REWD or complete the SAFE 1 repayments stencil to make the set-off. See subject 'Reallocation Into COTAX - responsible CT office' (COM122010).
For interest purposes treat a surrendered refund of income tax or tax credit and so on as
- CT paid by the recipient company
- On the normal CT due date for the AP in which the surrendering company paid it
When you use Function DSET or request a set off from a SAFE charge to give effect to a surrender, the EDP (Word 41KB) you enter should always be the normal CT due date for the AP.
Interaction with tax-related penalties
The recipient of a Section 102/Reg 9 surrender is to be treated for the purposes of calculating any tax-related (Word 30KB) penalty only, as having paid the surrendered amount on the date the joint notice is given
- Not the date the surrendering company paid the duty
- The normal CT due date for the AP (see S102(6) FA 1989)
So, there can be a different EDP for penalties purposes from the EDP for tax purposes and the computer cannot take account of this.
There is no problem when the date on the notice of surrender is no more than 18 months after the end of the AP (which is the normal tax-related penalty point). You will have entered the normal CT due date (nine months and one day after the end of the AP) as the EDP. The computer will treat the surrendered amount as a payment of CT on the normal due date.
Provided you make the surrender posting no more than 18 months after the end of the AP, the computer rightly reduces the tax unpaid (Word 41KB) on which it bases any tax-related penalty.
Notice of surrender given more than 18 months after the AP end
If the companies give notice of surrender after the 18 month point, tax-related penalties must be based on the tax unpaid at the point the tax-related penalty arose, taking no account of the surrender.
You must enter the normal CT due date as the EDP when using Function DSET or requesting a set off from SAFE to give effect to the surrender. However, the computer then gives credit for the surrendered amount when it calculates the unpaid tax on which to base the tax-related penalty calculation. That is not right, and you will sometimes need to intervene.
Posting the surrendered amount to the recipient’s record using Function DSET does not cause the computer to recalculate any tax-related penalty. If the penalty determination is final you need take no special action providing you do not
- Need to amend the tax liability on the recipient for the AP
- Use Function PPEN (Prepare Penalty Determination) for that AP
However the computer will recalculate the penalty if you
- Amend the tax liability
- Use Function PPEN to reconsider the penalty determination for the AP for any reason
It will enter the case on your PENR (Penalties Requiring Review List) work list. When you use Function PPEN, the computation of the tax-related penalty the computer shows you will be wrong. You must amend the figure for tax unpaid at the 18 month point, to stop the computer giving credit when calculating the penalty for the surrender received.
For a list of forms relevant to this subject, see COM122011.
For a list of functions to use in particular situations, see COM122012.
For legislation applying to this subject, see COM122013.
