Clause 55 - Duty of company to give notice of coming within charge to corporation tax
Finance Bill (except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)
3:15 pm
Mr Howard Flight (Shadow Chief Secretary To the Treasury, Economic Affairs; Arundel and South Downs, Conservative)
I beg to move amendment No. 110, in
clause 55, page 61, line 1, leave out 'three' and insert 'six'.
As hon. Members will know, the clause is about new companies being required to notify the Revenue within three months of their first accounting period. In the past, if companies have not been sent a corporation tax return, they have been obliged to notify the Revenue within 12 months of the end of their accounting period. That could amount to 24 months after the start of the business.
In practice, the Revenue has traditionally found out from the registrar of companies when new companies have formed. Each new company has been sent a form to complete, requesting basic tax information and other details such as when the company started and who the directors are. It was not a statutory return and could be ignored without penalty, but if it was ignored the Revenue's practice was to assume, provisionally, that the first accounting period would run for 12 months from the date of incorporation, and a return would be required accordingly.
By way of a description of the changes under the clause, the Revenue's Budget notice document ''Protecting Revenues'' stated that
''the requirement for newly incorporated businesses to disclose basic tax information will be strengthened''.
What is actually introduced is an obligation for the companies to tell the Revenue in writing that an accounting period has commenced because they have come within corporation tax for the first time, and notification has to be given within three months of commencement. The obligation is underpinned by the threat of a penalty of up to £300 for initial failure and £60 per day for continued failure. As with other comparable penalties, they can be avoided with a reasonable excuse, but ignorance is not one of them.
The provision is reasonably straightforward, although unincorporated associations and clubs that are subject to corporation tax have been excluded. Will the Economic Secretary confirm that the arrangements also apply to dormant companies? Are they related to incorporation or to coming within the charge? In either event, the provision needs significant publicity as many people buy companies via the internet and may be unaware of it. There should be some form of reminder issued automatically.
The Chartered Institute of Taxation, which we are inclined to support, believes that the notice period of three months within which an entity must give notice of falling within the charge to corporation tax is rather short, and we see no reason why the requirement to notify should not be replaced with a requirement to file or with a longer period. We would expect tax legislation to impose less stringent requirements on companies moving into the corporation tax system on the grounds that they are naturally less familiar with the rules and with their obligations.
It is tempting to think that the Treasury has seen another nice little earning opportunity and that, as with self-employed notification where the £100 penalty has been quite a successful source of money because of people not meeting the timing requirement, the same thinking is that the provision may be a not unworthwhile source of income.
Amendment No. 110 would extends the time for giving notice to six months.