Select Committee on Treasury Eighth Report


54. The introduction of Self Assessment for companies extended the principles of Income Tax Self Assessment to company tax returns. Corporation Tax is levied by reference to a company's accounting period, which can vary in length and end on any day of the year. Corporation Tax Self Assessment applies to accounting periods ending on or after 1 July 1999. Companies normally have to file their returns 12 months after the end of an accounting period. But unlike Income Tax Self Assessment, the date when tax has to be paid is not the same as the date for filing. For most companies, Corporation Tax has to be paid 9 months after the end of the accounting period. So a company which has not filed its return by the due date for payment of tax will have to pay an estimate of its tax liability. Companies paying very large amounts of tax have to make quarterly payments of their estimated tax liability, with the first payment due half way through the taxable period and based on a projection of the current period's profits.[68]

55. The Revenue told us that the introduction of Corporation Tax Self Assessment had been a less radical change for companies than Income Tax Self Assessment had been for individuals. Company taxation had, since 1993, been governed by Pay and File rules, which introduced many of the planks of Self Assessment such as a computational style return form requiring the company to work out its own tax bill, and the requirement to pay on a current year basis before the tax liability is established by self assessment.[69]

56. The evidence we received confirmed this view. The Chartered Institute of Taxation noted that "the vast majority of companies are small or medium sized companies. For them, the transition from the Pay and File system to Corporation Tax Self Assessment involved very little change. No significant problems were experienced."[70] The Institute of Chartered Accountants in England and Wales noted that because Corporation Tax Self Assessment had been built on the back of Pay and File it had been "relatively painless" for companies.[71] However, both Institutes called for a change to the system for large companies which are required to pay their Corporation Tax in quarterly instalments, the first two of which are based on estimates.[72] According to the Institute of Chartered Accountants in England and Wales "this is an unnecessary complication, which could be avoided if instalments were based on, for example, the previous year's figures with a balancing payment at the end to reflect the final liability for the year."[73]

57. It appears from the evidence we have received that Corporation Tax Self Assessment has been introduced without any significant problems. We note the suggestion that the quarterly instalments large companies are required to pay should be based on prior year figures, rather than on estimates as at present, with a final adjustment based on outturn when known. We recommend that the Revenue examine and report on the costs and benefits of such a change.

68   Ev 8, paras 53-56 Back

69   Ev 8, para57 Back

70   Ev 27, para 3.2 Back

71   Ev44, para 41 Back

72   Qq159-162, 209 Back

73   Ev 44, para 45 Back

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