Draft Regulations – Duty of Company to Notify Coming Within the Charge to Corporation Tax
Previously, the Inland Revenue published draft regulations which prescribes the information companies will have to provide to satisfy the proposed new requirement to notify coming within the charge to corporation tax, which is included at Clause 55 of Finance Bill 2004. Comments on the draft regulations were invited by 16 July 2004 and a number of representations concerning both the draft regulations and Clause 55 have been received in response. We are grateful to all who took the time and trouble to comment.
Clause 55 Finance Bill 2004 introduces an obligation on companies coming within the charge to corporation tax (CT) for the first time, or coming back into the charge to CT following a period of dormancy, to notify the Inland Revenue and to provide prescribed information about the company and its directors.
The regulations set out in detail the 'prescribed information' which companies will have to provide to satisfy the new requirement.
The intention is that the information that must be provided to the Inland
Revenue will include details of the company and its directors, similar to
those on the form that each company is presently requested to complete but
for which there is no statutory backing.
The clause prescribes a penalty for failure to comply with the obligation. The clause will not apply to unincorporated associations, which have been excluded on the grounds that the obligation would be disproportionate in the case of clubs and similar bodies with small amounts of income.
Below is a summary of the comment (bold) received and our thoughts in respect of those comments.
The obligation to give notice under Clause 55 overlaps with and duplicates
the existing obligation under paragraph 2, Schedule 18 FA 1998.
The obligation under paragraph 2, Schedule 18 FA 1998 is for a company to notify the Revenue within 12 months of the end of an accounting period that it has become chargeable to tax if it has not received a notice requiring a company tax return. Unlike the notice under Clause 55, it is an annual obligation.
The obligation to give notice under Clause 55 is triggered when a company first comes into the charge to corporation tax, or when it comes back into charge following a period of dormancy. Compliance with this obligation will result in the company being given a notice requiring a company tax return. So for the year in which a company first comes within the charge to corporation tax there will not be a further obligation to notify chargeability to tax.
The 3-month period for notification as set out in Clause 55 is too
The intention of this new measure is to require early notification and information so that the Revenue can ensure compliance over a wide range of company obligations from the outset and offer timely help and support. This is why the period for notification has been set at 3 months.
The £300 penalty for failure to notify is too big.
The penalties for failure to give timely notice is that which is set out at section 98 Taxes Management Act 1970, which apply to a variety of returns and notices. But it should be borne in mind that whilst the penalty for initial failure can be 'up to' £300, and whilst we will regard failure to comply with this obligation seriously, this is not an automatic penalty and can be imposed only by the General or Special Commissioners.
It should be compulsory for Companies House to advise directors of
all new companies of this obligation and deadline.
We do not think it is necessary or appropriate to compel Companies House to advise all new companies of the obligations imposed by clause 55, in the same way that we do not think it is appropriate to compel Companies House to advise companies of other tax compliance obligations. But we will continue to send form CT41G to companies on the basis of information received from Companies House when new companies are formed and the form CT41G will be updated to explain this new obligation so companies should be made aware of this new obligation in time to comply.
At the time of giving notice a company may not have formed any view
on its accounting. It would be unfair to penalise a company that had not formed
its plans at that stage or which changes its plans subsequently.
All that is being required here is notification of the date to which the company intends to prepare accounts. It is recognised that this aspect of the regulations will oblige companies to consider their intentions in relation to accounting periods earlier than they might otherwise have done, and also to notify that intention to the Revenue. This is one of the ways in which this measure will help us to assure better compliance with CT obligations from the outset. However, there would be no question of penalising companies who, after notification of their intentions, change their plans and adopt a different accounting date.
Why can’t paragraph 2(6) of the draft regulations simply ask
for the PAYE reference of any scheme that has been set up and, if none, for
the Revenue to set one up on receipt of the notice?
The straightforward but important information required here is needed to help early assurance that new companies comply not only with corporation tax obligations but also with PAYE obligations. Currently the Employment Regulations do not require anyone to tell us that they have become an employer and Regulation 43 (end of year return) is the only obligation in this regard, and in most cases will arise long after the 3 month notification deadline for clause 55.
In some cases, a PAYE scheme might already be in existence but I for many of the incorporations there is no scheme. Also under Regulation 3 of the Employment Regulations, an employer can elect to have more than one scheme, (perhaps one for the directors so the employees do not find out how much they are being paid).
If we asked merely for the PAYE reference of any scheme that has been set, we would be asking for details which, if they were capable of being provided, must by definition already be in our hands as an organisation. And whilst if a PAYE scheme has already been set up we might thereby know the date on which the obligation to comply with PAYE obligations first arose, it doesn't follow that we will know. Of course, where we do, then compliance with that aspect of the Regulations will already have been satisfied.
Asking simply for the company name and not the company registration
number (CRN) of the company is not enough. What if the company changes name?
This is a particularly welcome observation. We had not intended asking for the CRN as we get details of both the name and CRN on incorporation from Companies House (CH). By asking for the name of the company we thought we were providing for (as frequently happens) a change of name between incorporation and the commencement of business. But if the company notifies under its new name not having told (or before telling) CH of the name change, then without the constant of the CRN it might be difficulty identifying that the notice given by XYZ Ltd (no CRN provided) is the notice we were awaiting from ABC Ltd, CRN 123456.
We will revise the draft regulations to ask for the Company Registration Number.
In asking for "the full names and addresses of the directors
of the company", can the regulations clarify whether this means the business
address of the directors.
The address needed is the one that will enable us to find the directors on our computer systems which could be a business or private address depending on whether or not the director is/was self employed. So we will revise the draft regulations to require:
- the full names and place of residence of each of the directors of the company, and
- where the company has taken over any business, including any trade, profession or vocation, formerly carried on by any of the directors, the address or addresses of that business/those businesses.
Whilst many companies will only have a handful of directors, an incorporated
association (company limited by guarantee) or something similar (flat management
or freeholder owning company) may have many directors none, of whom receive
any remuneration whatsoever. Can the regulation initially require details
of a maximum of say 3 directors?
We think that there will be very few cases where the number of directors would make giving notice of their names and addresses overly onerous. But we will consider what might be said in the CT41G guidance regarding details for large numbers of directors.
If this obligation applies to both UK companies and foreign companies
trading through a UK branch, Why not ask for country of incorporation? This
might help with companies incorporated in different jurisdictions but with
Besides the CRN, which will now be part of the prescribed information, we expect that details of the registered office and place of business will be sufficient to resolve any apparent duplication.
For foreign companies, details of the Company's UK branch representative
may be more useful information than details of directors resident overseas.
So long as we know the place of business and that company is trading in UK as a branch, we do not think we need to know name of the UK branch representative.
The draft regulations require details of parent company and address
of registered office. Is there any geographical limitation on this?
There is no geographical limitation but we will consider what might usefully be said in the CT41G guidance.
Currently, the CT41G asks details of accountants or other agents
who will be dealing with the company's tax affairs. Will this information
be requested in future even though it is not prescribed by the regulations?
Yes. The CT41G will ask for items of information not prescribed by the regulations but there will not, of course, by any penalty for failure to provide such information.