Accountants should be aware that the end of the present tax year is fast approaching and HMRC has reminded the UK small business community that changes to corporation tax are imminent.

As from the start of the new tax year, corporation tax filing and payments will need to be made electronically. Furthermore, all company tax returns for accounting periods that ended after March 2010 will also have to be filed in XBRL or iXBRL format.

Payment of corporation tax will have to be made by Direct Debit, credit or debit card, using either bank transfer or the BillPay service.

An HMRC spokesperson explained that these changes will affect associations, charities, clubs, co-operatives and societies as well as any limited company. Firms will be able to use commercially available software to file or the department’s own CT software aimed at firms with less complex taxation affairs, the Revenue added.

As from April next year, firms will also have to submit their VAT returns online.

Meanwhile, the Institute of Directors is calling on the government to reduce corporation tax until it reaches 15% in 2020. People are starting to think of the UK as a high-tax economy and that will not encourage foreign companies to invest here.

The IoD wants the UK to have the lowest rate of corporation tax throughout the world. It has estimated that this could be achieved at a cost of £9 billion a year, a figure which could be achieved by continuing restraint on public sector growth.

By reducing corporation tax to just 15%, the UK would be sending out the strong message that it is open for business.

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A number of leading organisations are calling on George Osborne to deliver a budget that supports small businesses such as contractor accountants.

Recent research from BDO found that business leaders in the UK want the coalition to speed up its plans for simplification of the tax system and concentrate on helping entrepreneurs, rather than big multinationals, in the budget.

66% of business leaders think the coalition should accelerate its plan to reform the business taxation system and make it fit the needs of all UK firms.

Respondents to the survey were also asked what measures the chancellor should take to reduce the deficit. 50% favoured more public spending cuts but very few thought the solution was to increase taxes such as income tax or VAT.

However, when the economic situation improves, 41% of business leaders believe a cut in personal taxation should be prioritised. 35% said further measures should be taken to reduce the deficit and only 6% thought a cut in corporation tax was a priority.

Stephen Herring, a senior tax partner at BDO, said the results highlight that there is an urgent need for business tax reforms to drive business growth across all sectors.

The REC has written to George Osborne asking him to make sure the Budget really is a ‘Budget for Jobs’. The letter builds on the themes of the REC manifesto to remove the barriers that are prohibiting growth and deliver opportunities and jobs.

In particular the REC suggests avoiding any increase in business taxes, implementing an NI holiday for SMEs that hire young people and scrapping the National Insurance increase. The Confederation also calls on the government to do all it can to smooth the AWR implementation and promote flexible working.

The ICAEW says the chancellor should concentrate on long-term growth plans rather than quick-fix solutions. In order to achieve this, he should develop a simpler taxation system, a better approach to supporting enterprise and a highly-skilled, socially mobile workforce.

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David Cameron has attacked the people he considers to be the enemies of enterprise that are threatening to hold back British businesses.

Speaking at the Conservative spring conference in Cardiff, the PM repeated his commitment to the promotion of economic growth. Cameron said that as well as having a positive social impact, new enterprises are good for the economy. He did however admit that we have our work cut out to encourage people to form a limited company.

For more than 10 years, the enemies of enterprise have taxed, regulated, smothered, crushed and generally got in the way, he said.

George Osborne’s budget later this month will lay out specific measures to help business start-ups. These could include the removal of bureaucracy and the easing of regulations.

Meanwhile, existing companies are confused about the requirements of the new senior accounting officer legislation adding compliance costs to their existing financial burden. However, Deloitte says most are in a good position to comply.

According to Deloitte’s research, 11% of organisations have complete confidence in their compliance, although 69% expect to file an unqualified certificate. The areas that are causing most concern are VAT, PAYE, corporation tax and excise duties.

The new rules mean that senior financial officers now have to certify annually that their company systems are fit for tax reporting purposes. The legislation only affects companies with a turnover in excess of £200 million.

HMRC had assured companies that the sign-off would not lead to increased costs, 50% of respondents claimed the costs had been significant. 13% did admit that the increased cost of compliance has been set off in part by the savings they discovered during the review process.

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Large organisations pay less tax on their earnings percentage wise than anybody else, according to the results of a survey by the Business Taxation centre at Oxford University.

However, their overall tax liability is higher as 81% of all corporation tax is paid by 1% of the largest companies.

A separate survey conducted by PricewaterhouseCoopers found that 11.9% of the government’s tax receipts came from Britain’s largest companies in the year ending 31 March 2010. The total remittance from these companies was £56.8 billion despite the challenging economic climate leading to lower commodity prices and profitability.

The PwC survey was conducted on behalf of the Hundred Group which provides employment for more than 6% of the UK workforce and generates £16.7 billion in employment taxes alone.

Corporation tax makes up 33.7% of the total tax burden for members of the Hundred Group, followed by NICs at 27.4% and local business rates at 20.3%. The major contributors come from the oil and gas sector, banks, retailers and insurance companies.

When it came to salaries in 2010, members of the Hundred Group paid an average of £46,550. This compares very favourably with the UK national average of £25,900.

The vice chairman of the Hundred Group of Finance Directors, Ashley Almanza, said the survey results show that member companies continue to make a substantial contribution to the country’s economy. It is vital for government and business to continue working together to create both investment and employment opportunities and in order to achieve that the tax system must be predictable and internationally competitive, he added.

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The CBI believes the government needs to reduce corporation tax further than its intended level of 24% if the UK is going to remain competitive.

John Cridland, the director general of the business group, said that tax reform should improve competitiveness and make the UK a more attractive place for investors. Lowering the corporate tax rate will go some way towards encouraging organisations to base their operations in this country but the government also needs to address the tax burden which is making the overall system uncompetitive. Furthermore, the 50% higher income tax rate is seen as a barrier to attracting much needed talent to the UK.

The CBI also has concerns about the proposals for taxing foreign companies that are owned by UK businesses. The anti avoidance measures that have been included in the proposed controlled foreign companies regulations make the regime cumbersome, it says.

Foreign companies perceive HMRC as very aggressive when it comes to CFCs and whilst it is important to keep the UK tax base, any anti-avoidance measures have to be proportionate to risk and aimed at specific abuse. Investment could be deterred if measures are perceived to be too heavy-handed.

The CBI does support the Patent Box to complement the current Research and Development Tax Credit scheme but believes that more thinking is required to make the UK more competitive. The government should also implement measures to incentivise intellectual property development after the research stage but before the patentable product creation stage.

Cridland’s comments were made as part of the Confederation’s submission to the Corporate Tax Reform government consultation.

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The European Commission has requested that the UK amends its anti-avoidance and tax evasion measures.

Last week, the EC said that regulations regarding the attribution of gains to non-UK resident firms and the transfer of assets abroad were disproportionate. The Commission added that the UK regulations go beyond those that are reasonably necessary in order to prevent tax avoidance.

David Kilshaw, the chair of KPMG’s private client practice, said this could be a serious threat to the Treasury’s revenue as it concerns a significant amount of tax.

Current provisions allow for HMRC to review offshore structures and tax individuals holding assets in them at the personal tax rate. However, the EC says this is discriminatory as individuals are not liable to pay tax on the assets of a UK based company.

The EC also wants the UK to change the regulations regarding cross border capital gains. At present, if a company that is UK resident acquires a share greater than 10% of a company in another EC state, and that company sells an asset and realises capital gains, the UK company is liable to pay corporation tax on these gains.

Kilshaw also warned that HMRC might start to tax UK companies at a higher rate if it is forced to tax them the same as offshore companies.

If the UK does not comply with the request, the matter may be referred to the European Court of Justice.

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Nearly half of the UK’s SMEs have agreed that the government made the right decision to increase VAT.

Intuit, the producer of QuickBooks financial software, conducted a survey of small business owners and found that 44% support the VAT increase as a means of tackling the fiscal deficit. 13% believe that increasing income tax would have been a more effective alternative.

It also appears that, at least so far, the VAT increase has not had a serious impact on the majority of small businesses. 67% of the survey’s respondents said the rise had not impacted their business.

39% of SMEs decided to absorb the full VAT rise rather than increase prices to their customers. According to nearly 70% of the surveyed businesses, the increase cost them less than £350 to implement and slightly less than 50% claimed to have spent less than 5 hours on its implementation.

However, business confidence is still fragile and cashflow is starting to show signs of strain. The increase in fuel duty is a further concern for businesses, points out the FSB’s national chairman, John Walker.

Meanwhile, experts believe that we are unlikely to see many tax concessions when George Osborne delivers the Budget in March.

The Green Budget, published by the Institute of Fiscal Studies and Barclays Wealth, claims that fiscal loosening could be counter-productive if it leads to an offsetting of financial tightening.
Michael Dicks, from Barclays Wealth, said he expects the UK economy will grow at much the same rate as the OBR has predicted, but the risks are skewed to the downside.

The Green Budget report welcomed the reduction of corporation tax but said the ‘Patent Box’ will add needless complexity to our taxation system.

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The Autumn Statement from the government showed a revised prediction for economic growth next year. Previously the coalition has predicted growth of 2.3%, but this figure has now been lowered to 2.1%.

However, the IoD disagrees with this, claiming that economic growth in 2011 will be much lower. It likened the recovery cycle to a square root sign which has witnessed a temporary spurt in 2010 but will level off next year.

The IoD commented that the Comprehensive Spending Review has caused too much doom and gloom and the UK needs to realise that there are also other weaknesses in the economy. Lower than expected growth could cause George Osborne to increase taxes, a move which would affect contractor accountants and other freelancers. In fact, if the government’s predictions for GDP are accurate, the chancellor will have to choose between tax increases or further spending cuts if the coalition is to meet its budget deficit targets.

In other related news – although the government has committed to reducing corporation tax, the IoD claims that the new moves still do not go far enough towards attracting more foreign invest in the UK.

The IoD’s head of taxation, Richard Baron, said that whilst the Institute welcomed the fact corporation tax is set to reduce to 24% that still leaves the UK in the bottom half of the list of countries with an attractive rate.

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George Osborne delivered the government’s Autumn statement on Monday and laid out new plans for the multinational tax regime in the UK.

Designed to provide certainty for businesses and contractor accountants, the new controlled foreign companies’ rules will be legislated for in the 2012 Finance Bill.

The coalition plans to introduce an entity-based system and levy a CFC charge on overseas profits artificially diverted from this country. Attention will be focused on high risk entities and the government intends to devise specific rules for financial institutions such as banks and insurance companies as well as property industries.

An exemption will be made to allow groups to manage their overseas operations efficiently, while at the same time protecting the UK tax base. It will work by assessing the debt-to-equity ratio of the finance company and levying the CFC charge on any excess equity.

Businesses have suggested to the Treasury that the CFC rate should be less than 10%. The current government proposal is a debt/equity ratio of 1:2; meaning two thirds of income from overseas finance would be exempt from the tax. With a 26% rate of corporation tax, the levy on overseas finance income would be 9%.

Next year’s Finance Bill will contain an interim step of exempting foreign to foreign group transactions that do not affect the UK tax base.

Other proposals laid out on Monday included annual phased reductions of 1% to the main corporation tax rate, leading to a rate for a limited company of 24% in 2014. The government also intends to introduce a “Patent Box” scheme in April 2013 whereby profits arising from patents will be subject to a 10% tax.

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The Institute of Directors has said that the government’s plan to reduce corporation tax is still not enough to encourage foreign businesses to invest in the UK.

Corporation tax rates recently fell to 28% and the coalition intends to reduce them further to 24%, but the IoD thinks they should be dropped further in order to attract foreign investors. A spokesman for the IoD, Alistair Tebbit, pointed out that the UK has one of the highest rates of corporation tax which means we are not competitive with other EU countries where the average rate stands at 23%.

The Institute has also called on government ministers to reform the IR35 rules that have long dogged contractors. The OTS is about to begin its review of the IR35 legislation and the IoD has already put forward its suggestions for change. As part of the review, the OTS will conduct a series of roadshows around the UK to find out what business owners think about the complexity and cost of small business taxation.

IR35 should be replaced by precise rules, along with a screening test, so that the majority of companies are taken out of its scope. But the IoD’s head of taxation also says that widespread reform of the small business taxation system could be an acceptable alternative.

John Whiting, the Office of Tax Simplification’s tax director, acknowledges that small business taxation is complex and the problem cannot be solved overnight. The OTS is due to inform the chancellor about the areas where simplification should be prioritised, before the Budget next year.

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Accountants in the Birmingham area may benefit from visiting an event to be run by HMRC.

On November 3rd, the Revenue will be holding the last of its iXBRL events. This event will showcase accounts production and conversion tools that can convert existing data into iXBRL format for the filing of Corporation Tax returns.

HMRC has already run a couple of similar events in recent months, however the London event in June was probably held a bit too early as working versions of the software were not readily available at that time. People really have to see the program to appreciate the way it works, a programme manager from Carter commented.

The accounts/tax software production industry should have more commercially released products to show by the time the Birmingham show comes around. Forbes Computer/Absolute Accounts, TaxCalc and QMS have already launched iXBRL software and IRIS and Thomson Reuters will be launching products in the not too distant future.

A survey conducted earlier this year by CCH showed that many accountancy firms were not prepared for the new online submission system. As from 1st April next year, corporation tax returns must be filed in in-line eXtensible Business Reporting Language. This could cause problems for accountancy firms that file clients’ corporation tax returns from third party data as this is often in either paper or pdf format.

If you want to go to the Birmingham event, HMRC would like you to telephone the bookings team on 0845 603 2691 so they have an idea of the number of visitors who will attend the morning and afternoon presentations.

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HMRC has published a guide for businesses and contractor accountants explaining how they need to comply with the iXBRL format computations for Corporation Tax online filing.

The iXBRL guide for UK businesses is 14 pages long and is available online from HMRC’s Corporation Tax Library. The guide has been designed to give senior managers an introductory overview, so that they can cope once online filing becomes mandatory in April.

The guide explains that it is up to the company to make sure it fully complies. Companies should ensure their computer software is capable of handling the requisite type of data required for the reports.

The transition to iXBRL format accounting is going to be complicated and the Revenue accepts that there might be errors and omissions with tagging. But HMRC would like to help businesses get to right as opposed to penalising them.

Two iXBRL roadshows have also been planned to give businesses and their accountants a chance to get hands-on experience. The first of these will be held at Glasgow’s Hampden Park on September 15, followed by St Andrew’s Stadium in Birmingham on the third of November.

CCH software has also created a practice tool to help people prepare for iXBRL. Users answer various questions about current working methods and the software they use, and the iXBRL Practice Planner compiles a short report highlighting areas of concern and ways of tackling them.

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