As trusted accountants and tax advisers in Bury, Horsfield & Smith has helped businesses across Greater Manchester and beyond navigate the complexities of Corporation Tax Self Assessment (CTSA). This system requires companies to calculate and report their own tax liabilities, ensuring they meet HMRC’s legal requirements. However, understanding CTSA isn’t just about compliance. It’s also an opportunity for businesses to explore tax efficiencies and cost-saving strategies.
In this article, we’ll walk you through the key features of Corporation Tax Self Assessment, the practical implications for businesses and how strategic tax mitigation can play a crucial role in reducing your company’s tax burden.
Corporation Tax Self Assessment key features
Corporation Tax Self Assessment brings several responsibilities for companies. These include:
- Paying tax in advance of filing: Unlike personal self-assessment, corporation tax is payable before submitting the return. This means your company must accurately estimate and pay its tax liability in advance of the final figures.
- A ‘process now, check later’ system: Once your return is submitted, HMRC operates a system where the return is accepted initially, but may be reviewed or enquired into at a later stage.
- Reporting of additional liabilities: The tax return must include liabilities for certain transactions, such as loans made to shareholders (known as participators in close companies) and Controlled Foreign Companies (CFC) legislation.
- Self-assessment of transfer pricing: For companies involved in cross-border transactions, transfer pricing rules apply. Companies must ensure that transactions between related parties are carried out on an arm’s length basis, and these must be self-assessed under CTSA.
While these obligations may seem daunting, they also present an opportunity for careful tax planning. At Horsfield & Smith, we specialise in helping companies comply with CTSA while exploring opportunities for tax mitigation, ensuring businesses pay no more tax than necessary.
Practical implications of CTSA for companies
Notice to file and filing deadlines
Each year, HMRC will send a Notice to File to every company required to submit a corporation tax return. In most cases, the return must be submitted within 12 months of the end of the company’s accounting period. This means it’s essential to stay on top of your filing deadlines, as late submissions can result in penalties.
Since 2010, all companies must submit their tax returns online and accompanying accounts must be submitted in the iXBRL format. Unincorporated organisations or charities that do not fall under the Companies Act can still choose between iXBRL and PDF formats. However, they must comply with online filing requirements.
Penalties for late filing
Failure to submit corporation tax returns on time can lead to penalties which increase based on the length of the delay:
- Up to three months late: £100 penalty.
- More than three months late: An additional £100 penalty.
- Six or twelve months late: Tax-geared penalties, set at 10% of the unpaid tax due on those dates.
If your company files late three years in a row, the initial penalties of £100 will increase to £500 each. These penalties can add up quickly, creating unnecessary financial stress. At Horsfield & Smith, we not only help you meet deadlines. We also ensure that your return is accurate and fully optimised for tax efficiency.
Submission of the return
The corporation tax return you file is final, subject to:
- Company amendments: Your company has 12 months from the statutory filing date to amend the return. This might involve changes such as adjustments to capital allowance claims.
- HMRC corrections: HMRC has nine months from the date of filing to correct any obvious errors. These are usually straightforward mistakes such as incorrect calculations.
- HMRC enquiries: If HMRC identifies any concerns, they may open an enquiry into the return, but they are required to inform you of this formally.
It’s important to note that the ability to amend your return or respond to an enquiry is a vital part of tax compliance. However, it also offers an opportunity to reconsider your tax strategy. If you suspect that there are opportunities to reduce your tax liability, amending the return can allow for improved tax outcomes.
HMRC enquiries: What to expect
Under CTSA, HMRC has the explicit right to enquire into the completeness and accuracy of your return. These enquiries can range from straightforward requests for more information about certain items to full-scale investigations of your company’s records and business activities.
Key features of the enquiry system include:
- HMRC generally has a fixed period of 12 months from the date of filing to open an enquiry.
- If no enquiry is opened within this period, and no amendments are made by the company, the tax return is treated as final—although HMRC can still raise a discovery assessment later (explained below).
- If an enquiry is opened, HMRC will provide formal notice and outline the scope of the investigation.
- If HMRC does not provide adequate grounds for continuing the enquiry, companies have the right to request a closure notice via the tax tribunal.
Navigating an HMRC enquiry can be challenging, but it’s essential to respond promptly and with accurate records. At Horsfield & Smith, our experienced team can represent your company during an enquiry, helping you defend your position while identifying potential opportunities for tax mitigation to reduce your overall tax liabilities. Find out more details on our tax mitigation services.
Discovery assessments
Even after the enquiry window has closed, HMRC retains the right to issue a discovery assessment if new information suggests that the original return was inaccurate. Discovery assessments can be raised for reasons such as:
- Fraudulent or negligent behaviour.
- Incomplete disclosures of taxable income.
- Mistakes made during the self-assessment process.
The time limits for discovery assessments depend on the nature of the issue:
- Standard time limit: Four years after the tax period.
- Careless errors: Six years after the tax period.
- Deliberate concealment: Up to 20 years.
Understanding these time limits is essential for tax planning and Horsfield & Smith can assist with minimising the risk of discovery assessments by ensuring accurate and complete tax filings from the outset.
Payment of corporation tax
Corporation tax is generally due nine months and one day after the end of the accounting period. If your company fails to meet this payment deadline, late payment interest will be charged. Conversely, if you pay your corporation tax early, you may earn credit interest, which is taxable.
For large companies subject to the Quarterly Instalment Payment regime, it’s critical to manage cash flow carefully, as missing instalments can also result in significant interest charges.
Loans to shareholders (participators)
If your company is considered a close company (which most privately owned, smaller companies are), loans made to shareholders (participators) carry additional tax implications. Under CTSA rules, if a loan is not repaid within nine months of the accounting period, the company must pay 33.75% of the loan amount as corporation tax. This tax can be reclaimed once the loan is repaid, written off, or released.
Further anti-avoidance measures are in place, including:
- The 30-day rule: If repayments of £5,000 or more are made and within 30 days new loans or advances of at least £5,000 are issued, the original loan is treated as if it hasn’t been repaid.
- Waiting period rule: To prevent tax avoidance, this rule stops companies from waiting 31 days to make a new advance after a repayment is made.
At Horsfield & Smith, we help our clients navigate these complex rules to ensure compliance and minimise tax exposure.
How Horsfield & Smith can help
Corporation Tax Self Assessment has many intricacies. These range from filing deadlines and penalties to the nuances of HMRC’s enquiry and discovery powers. At Horsfield & Smith, we simplify this process to make it as smooth and efficient as possible for your business. More importantly, we work closely with you to uncover opportunities for tax mitigation. Through effective planning and strategic decision-making, we help reduce your overall tax liability.
If you have any questions about your corporation tax obligations or would like to explore tax-saving opportunities, don’t hesitate to get in touch with our expert team. Call us on 0161 761 5231 or email us at theteam@horsfield-smith.co.uk and we’ll be happy to assist you.
