Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 160 - 176)



  160. Earlier you mentioned, I think, that there were problems in relation to anticipation of profit levels.
  (Ms Self) Yes.

  161. Can you expand on that?
  (Ms Self) Yes. Companies above a certain threshold have to estimate and pay their corporation tax on a current year basis. If, for example, a company has a seasonal trade and has to estimate a payment in July when it knows that the critical impact on its results would be how good the Christmas trading is, it is very difficult for it to make anything like an accurate assessment of its profits. Equally, if a company makes a significant disposal close to the year end, that will mean that its total profits for the year will be a figure it could not have predicted part way through the year, and it will be charged interest from the earlier instalment date even though it could not have known the outcome until much later in the year.

  162. Is there no subsequent correction mechanism?
  (Ms Self) There is, but the interest is applied from the original instalment date and is based on the actual outcome once that is known with hindsight, so every large company will either pay or receive interest from the Inland Revenue.

  163. Are you making particular representations on this?
  (Ms Self) We have participated very actively in the Self Assessment Consultative Committee. As a result of that there was a significant improvement made in 2000 when the differential between the rate of interest paid by the Revenue and paid to the Revenue narrowed significantly, and we were very pleased to see that.

  164. Are there still outstanding matters you would like to see done in this particular aspect?
  (Ms Self) I think my disappointment is that there has not, to my knowledge, been a serious attempt to measure the burdens on companies of complying with the quarterly instalments as compared to the Exchequer benefits of receiving payments in advance in that way.

  165. Who should do that?
  (Ms Self) I think it should be done by the Inland Revenue but with significant input from bodies such as ourselves, the CBI and other representing companies.

  166. Have you made that suggestion?
  (Ms Self) Yes.

  167. What sort of response has it met with so far?
  (Ms Self) The latest minutes of the Self Assessment Consultative Committee state that there are no formal plans to consider a prior year basis.

  168. That is not quite the same though, is it? Are you asking for an assessment to be done?
  (Ms Self) Yes, but we have not been able to persuade anyone whether there should be an assessment and whether it should be looked at in more detail.
  (Mr Whiting) What we have found is a general unwillingness to contemplate that companies should base perhaps the first two of their payments on the past year to save them trying to project forward in a way. We would like to see at least a willingness to contemplate a change in the system and to look at the system that Heather has alluded to.

  169. How many companies do you think are affected by this particular problem?
  (Ms Self) It is a relatively small number in absolute terms. The vast majority of companies are outside the quarterly instalment payment system but it is all the largest companies in the UK and, for some very large companies, there is a significant amount of work involved. I have not yet seen any analysis of how accurate companies were in making their assessment for the first two years of self-assessment and I would like to see that information.

  170. That would be rather crucial.
  (Ms Self) Yes. If the outcome is that companies were able to estimate with reasonable accuracy then I would stop asking for this to be looked at in more detail, but my suspicion is that there will be a large number who have significantly overpaid or underpaid their tax during that period.

  171. What is the basis for that suspicion?
  (Ms Self) Information from colleagues within the Institute and within the CBI, in particular companies such as mergers and acquisitions departments of major banks where, part way through the year, they have no idea how many deals will be done towards the end of the year and I have spoken to tax directors who have said that it is almost impossible to make a reasonable projection. It is not the case for all companies and I am not saying it is the case for me personally in my job.

  172. Do you have any suspicion, to use your word, as to which way the balance might be going from the Inland Revenue's point of view? Is there more under or overpaying?
  (Ms Self) This is no more than a guess but I suspect, if you were to measure the actual corporation tax receipts as against anticipated receipts by the Treasury, that may give some indication. I seem to recollect that in January 2001 the receipts were rather higher than the Treasury had been expecting whereas in the current year they had been rather lower, and I do wonder whether that may be to do with the estimates.

  173. That is down to a lot of different factors, is it not, and I suspect this one is quite a small part of the formula.
  (Ms Self) Yes. It is something which can only be seen by looking with hindsight at how agreed corporation tax liabilities compare to the estimates that companies have made, and we are only just coming to the end of the review of the first couple of years of corporation tax assessment. There will be very few companies who have more than one year agreed yet.

  174. So you will carry on collecting data from this?
  (Ms Self) Yes.

  175. And feed it into the consultation process?
  (Ms Self) Indeed.
  (Mr Whiting) If I may add to this, certainly my own firm thinks that companies have tended to overpay to be on the safe side.


  176. We expect our inquiry to run for another couple of months so if you do collect data in that time we would like to have a look at it as well. We have to leave it there but can I thank you for coming today, for your memorandum and for the constructive contribution you have made.
  (Mr Whiting) Thank you very much for the opportunity.

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