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In the old days, many corporation tax computations were relatively straightforward. You would start with profit before tax, add back some disallowable costs such as customer entertaining and fixed asset depreciation, deduct capital allowances, and arrive at your profit subject to corporation tax.

The computation might be no more than half a dozen pages long, and it would simply be posted to HM Revenue and Customs with a copy of the statutory accounts.

Unfortunately, over the years, matters have become a lot more complicated, both technically and administratively.

In this article we give a brief overview of just a few of the recent (and not so recent) changes in this area.

Using your tax losses

The rules regarding the offset of tax losses changed in 2017. There were both relaxations in the rules, for instance in allowing brought forward as well as current year losses to be surrendered as group relief to other group companies, as well as new restrictions, limiting the offset of brought forward losses to a maximum of 50% of a company’s profits (subject to a £5m group de minimis allowance).

Add to this mix the fact that the old rules still apply to losses brought forward from periods before the rule change, as well as new administrative requirements (filing group allowance allocation statements in order to ensure that the right to offset carried forward losses is preserved to the fullest extent) and it’s clear that group planning to optimise the use of losses has become increasingly complex.

Interest deductibility

There are numerous rules which restrict deductibility of interest The tax-deductibility Factsheet – Claritas Tax, all of which need to be considered separately when preparing a tax return. In particular, the corporate interest restriction (CIR) restricts interest deductibility for a group to (broadly) 30% of tax-adjusted EBITDA, subject to a de minimis of £2m. There is an alternative calculation if the group’s interest payable is higher than this. These rules have to be considered on a group wide basis, and the resulting deductible amount then has to be allocated between group companies, which requires additional statements and group returns to be filed with HMRC.

Capital allowances

After a period of relative simplicity for a few years, capital allowances are once again a complicated area. As well as the Annual Investment Allowance (which gives a 100% deduction in the year of expenditure, but subject to a maximum threshold which has changed frequently), we now have to contend with the new “super-deduction” which gives an allowance of 130% or 50% (depending on the type of asset) for acquisitions between April 2021 and March 2023. The Structures and Buildings Allowance introduced in 2020 is also worth a mention, which gives a 3% allowance for expenditure on building construction or improvements.

Payment dates

For many years corporation tax was simply due 9 months after the end of the accounting period. This remains the case for many companies, but for a “large” company (defined as a company with taxable profits of £1.5 million, divided by the number of active companies in the worldwide group) tax is due in four quarterly instalments, usually beginning in month 7 of the relevant accounting period. For a “very large” company (the same definition, but with “£1.5m” replaced by £20m), tax is due in four instalments all payable during the year beginning in month 3. Payment planning and cash flow forecasting has therefore become much more complex. For companies close to one of these thresholds, careful use of group relief can sometimes delay a company moving up to the next level and then being required to pay its tax earlier.

Administration

Companies will by now be familiar with the CT600 tax return form which must accompany the corporation tax computation. A new and unwelcome recent development is the requirement to include details of a company’s coronavirus job retention scheme (CJRS) claims on the form, in spite of the fact that there is no particular need, to identify these amounts separately from a corporation tax perspective.

Companies will also by now be familiar with the need to submit ixbrl-format statutory accounts instead of a pdf version, adding a small but unwanted additional cost to the process.

Adviser independence

As if the above is not enough, many larger groups are now finding that their audit firm is no longer able to provide their corporate tax compliance services due to audit independence rules. Those forced into a change for this reason need to choose their new tax compliance provider carefully, to ensure they choose a firm that is committed to providing a high level of service.

Other issues

There is no space in this article to cover the numerous other issues which need to be included in a corporation tax computation – these include transfer pricing adjustments, controlled foreign company disclosures and charges, tax on loans to shareholders, R&D tax claims, patent box claims, and so on. All these are specialist areas which require separate advice, but the results of which all have to be included within the corporate tax return.

Conclusions

The level of complexity in corporation tax compliance is increasing all the time and shows no sign of abating. The reality is that corporate tax compliance is a specialist area requiring time, effort and focus from a dedicated team.

Our service offering

At Claritas our dedicated team is willing and able to handle all of these obligations for you. We can tailor our offering to meet with your specific requirements so that you only pay for services you need, invariably on a fixed fee basis agreed in advance. We pride ourselves on providing a personal level of service in small teams specific to each client.

If required, we can also assist in preparing tax accounting numbers for inclusion in statutory accounts, and we are experienced in working alongside auditors from other firms and providing output in the format they require.

The table below sets out the main corporate tax compliance services that we offer.

Standard service offering What we do & how we’re different?
Preparation of the Corporation Tax computations
  • Preliminary discussions to get to know your business.
  • Timeline setting out the key dates of when we will complete the work and when we require your input.
  • Regular meetings to understand your business needs, which work in line with your schedule.
  • Meeting or call before submission of the final returns to explain particular treatments and ensure you are fully informed when approving the tax returns.
Tax accounting
  • Calculation and disclosure of tax and deferred tax within the statutory accounts.
  • Offering specialist advice on what the tax impact is on your business and where opportunities or difficulties may arise.
Preparation of group relief summary
  • Providing an overview of your business to unlock insights and inform cashflow planning.
  • Communicating the scope and impact that any loss claims will make on improving the group’s cash tax position.
Review of claims and elections
  • Ongoing monitoring of claims and elections deadlines.
  • Where required, undertaking a review of past years to determine whether any additional claims would be beneficial.
Payment and Quarterly instalment payment advice
  • Calculating and advising on appropriate tax payments and instalments to make.
  • Communicating with HMRC on your behalf when required.
Additional service offerings
Corporate interest restriction planning
  • Ensuring your business is aware of the restriction on deductible interest.
  • Determining if previously disallowed interest can be reactivated and used in later periods.
Annual Thin Capitalisation review
  • Detailed analysis of group’s indebtedness position to determine if amount, interest rate, and payment terms of debt are on arm’s length terms.
  • Access to S&P’s Capital IQ data for quality comparable data.
Annual submission of Corporate Interest Restriction return
  • Preparation of CIR return and submission to HMRC.
Annual Controlled Foreign Companies review
  • Determining which companies need to be reported in the tax return and which entities are exempt.
Calculation of Transfer Pricing adjustments
  • Reporting the position and provide recommendations on prudent approaches to minimise risk of enquiries.
  • Informed with S&P’s Capital IQ data for detailed benchmarking analysis.
iXBRL tagging
  • Strong relationship with iXBRL tagging company to ensure accounts tagged in timely manner at a competitive cost.
Capital allowances review
  • Undertaking a specialist review of large spend (eg building construction) to ensure that the allowances which can be claimed are optimised
  • Optimising capital allowances claimed, including the new super-deduction.

 

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