Common Corporate Tax Mistakes to Avoid
A lot of the rules surrounding Corporation Tax appear to be straightforward at first but have numerous exceptions, relief’s and nuances when it comes to record keeping. Here are 8 common mistakes and how to avoid them.
Missing the CT600 Filing Deadline
You must file a CT600 return for your company within 12 months of the end of the relevant accounting period. This is different to the Corporation Tax payment due date and many directors get this date wrong. So, write the 12 months after the end of your company’s accounting period on your diary straight away. If your accountant completes your CT returns for you then ask your accountant if he/she has completed and on line filed the return for the current year.
Confusing the Payment Deadline with Filing
While it is easy to assume that the payment of Corporation Tax is due at the same time as the submission of the Corporation Tax return, the reality is that there are two separate deadlines that need to be remembered. In most instances, payment of Corporation Tax is due 9 months and 1 day after the end of the period end of the accounting period of a company. This is 3 months prior to the submission date of the Corporation Tax return. In many cases it is advisable to seek the guidance of a tax technician if in doubt.
Overlooking Capital Allowances
Capital Allowances are another area which can be lost for businesses. These are the allowances available for plant, machinery, and even vehicles. The Annual Investment Allowance for example allows most businesses to receive a 100% allowance on most items up to £1m per year. A simple running list of invoices and dates for qualifying purchases throughout the year, and claims can be adequately made when the accounts are prepared. Even items such as vans, machinery and office equipment can qualify for relief. It is so simple to check past year’s claims against the list above, rather than relying on past memories.
Getting Director’s Loan Accounts Wrong
Section 455 tax charges at 33.75% apply where any outstanding director’s loan account exceeds £10,000 at the end of the company’s accounting period and has not been repaid within 9 months after the end of the company’s accounting period (even if later repaid). Although the tax is refundable when repaid, interest is tied up in the company in the intervening period – often unexpectedly. Directors’ loan accounts should be kept up-to-date throughout the year rather than discovering the disastrous position at the end of the year and attempting to clear the outstanding amount prior to the 9 month deadline. More detail on advice from tax technicians is set out in the published guidance.
Misjudging the Associated Companies Rules
This applies from the current Corporation Tax rates and thresholds. It will depend upon whether your company has associated companies, i.e. other companies with which your company is under common control. How the rates will apply to your company will also depend upon whether marginal relief applies between the small profits rate and the main rate. Therefore, you need to check the latest guidance on the Corporation Tax rates and thresholds from GOV.UK as this will apply depending on the facts relating to your company and any associated companies it has had during the year.
Letting Record-Keeping Slip
Many disputed Corporation Tax claims arise from HMRC’s enquiry into expense claims by companies and their owners which have not been properly evidenced. Keeping proof of expenditure, such as receipts, relating to expenditure incurred by a business (and recorded in accounts as expenses) is essential. These should be sorted out and noted as expenditure incurred as soon as possible after payment. In some cases this can be done on a monthly basis to ensure that all necessary information is retained in order to defend expense claims.
Mixing Personal and Business Expenses
Many expenses will be used for both business and personal use. Items such as cars, mobiles and home offices need to be properly recorded to ensure that a sufficient proportion is allowed. Use a fair method to apportion the expense, record how you have worked out the amount and use the same method each year. Often simple records are sufficient to support the amount claimed such as a mileage log for car expenses or a note of the number of days worked from home. This is all explained in more detail in the professional accounting guidance.
Not Planning for the Bill in Advance
One of the most common mistakes is that businesses fail to allow sufficient time to pay Corporation Tax. The payment is due 9 months and 1 day after the end of the company’s accounting period. Therefore, it is important to put aside a percentage of the profits as they are made throughout the year. It is also wise to discuss your predicted Corporation Tax bill with your accountant part way through the year and adjust your savings accordingly.
Most of the above errors can be prevented by spending a small amount of time each year reviewing accounts and planning for the year ahead.
