Companies are assessed by reference to accounting periods. Normally, the accounting period is the period for which the company makes up its accounts. However, an accounting period for corporation tax purposes cannot exceed 12 months, so companies preparing statutory accounts for longer than 12 months need to prepare more than one corporation tax return.
Companies must file their statutory accounts and tax return within one year from the end of the accounting period; the return must include a self-assessment of the tax payable, eliminating the need for assessment by HMRC (though HMRC retains assessing powers for certain cases where it is not satisfied with the return, or where the company fails to make a return).
Electronic filing requirements
Returns must be filed online, and such returns must be filed in a specified format that is machine readable by the tax authorities. The accompanying accounts must also be in iXBRL format.
Payment of tax
For smaller companies, corporation tax is payable nine months and one day after the end of the accounting period to which it relates (i.e. before the return must be filed). For larger companies and groups, a system of quarterly payments on account (based on estimated profits) is in place, with the first payment being due in the seventh month of the accounting period concerned. A company will generally be considered large for this purpose in any accounting period in which it has taxable profits in excess of GBP 1.5 million (that limit being reduced by reference to the number of companies under common control, where relevant).
For accounting periods beginning on or after 1 April 2019, the largest companies with profits over GBP 20 million will have earlier quarterly payments dates, with tax due in the third, sixth, ninth, and 12th months of the period concerned.
The UK tax system can impose numerous penalties for failing to adhere to the self-assessment system. These include penalties for late filing of returns, failing to maintain appropriate records, submitting an incorrect return, making errors in certain documents sent to HMRC, unreasonably failing to report errors in assessments by HMRC, and failing to respond to a formal notice of information requested from the tax authorities within the specified time limit.
Other filing requirements
Large companies (those with turnover greater than GBP 200 million or balance sheet assets over GBP 2 billion) are required to notify HMRC of the identity of their senior accounting officer, who must certify annually that the accounting systems are adequate for the purposes of accurate tax reporting. Penalties are chargeable on the officer and the company for careless or deliberate failure to meet these obligations. Large companies and groups must also publish online annually a statement of their UK tax strategy. Again, penalties are chargeable on the responsible company for failure to meet these obligations.
Certain tax planning and structuring transactions and arrangements must be disclosed to HMRC either before or on implementation of the transaction under the Disclosure of Tax Avoidance Schemes (DOTAS) regime or the Disclosure of Avoidance Schemes for VAT and Other Indirect Taxes (DASVOIT) regime. These schemes cover most taxes and are reporting systems only, with responsibility placed on taxpayers, advisors, or promoters to report. HMRC are not required to respond to the reporting, and this is not an advance clearance or approval process. It is a reporting mechanism only, and, on occasions, new legislation has been introduced to block specific arrangements reported.
Under the EU Mandatory Disclosure Regime, from 25 June 2018, certain cross-border transactions need to be reported to HMRC. The Directive broadly relates to all direct taxes, and specifically excludes most indirect taxes. The rules require all arrangements that meet certain conditions to be reported. Following the agreement of the EU/UK Trade and Cooperation Agreement in December 2020, the obligation to report an arrangement to HMRC has been limited to cross-border arrangements meeting the Category D hallmarks. These hallmarks relate to arrangements that may have the effect of undermining reporting obligations under the Common Reporting Standard (CRS) or which involve ownership structures where the beneficial owners are made unidentifiable, and are consistent with the OECD’s model MDR rules. Penalties will be imposed for failure to comply with the reporting obligation. These penalties can range from GBP 5,000 to GBP 1 million or more depending on the circumstances and conduct of the intermediary or taxpayer.
Tax audit process and governance
The UK corporation tax process is one of self-assessment. Following filing of the tax return, HMRC has a period of (usually) 12 months in which to raise formal enquiries. These can range from simple information requests to detailed technical challenges over treatments adopted in the tax return.
These enquiries are often settled between the taxpayer company and HMRC by exchange of information and correspondence. Where agreement cannot be reached, arbitration or litigation may be necessary.
HMRC has certain powers to demand information and, in some circumstances, to enter premises to obtain documents, etc. These powers are rarely used, and there are no routine visits by HRMC officials to taxpayer premises.
Corporate criminal offences (CCOs)
CCOs were introduced in September 2017. This legislation outlines the failure to prevent the facilitation of tax evasion, with the rules applying to all companies and partnerships in the United Kingdom and also foreign entities with a UK nexus.
The offences can only be committed by a 'relevant body', which means only incorporated bodies and partnerships. The offences cannot be committed by natural persons. ‘Associated persons’ under the legislation are those acting for or on behalf of the organisation and can include employees, agents, or third-party service providers, as well as other group companies. The consequences of committing an offence under this legislation could include criminal prosecution, an unlimited financial penalty, ancillary or confiscation orders, and severe reputational damage.
Senior Accounting Officer and tax strategy publication
Large companies (those with turnover more than GBP 200 million or balance sheet assets over GBP 2 billion) are required to notify HMRC of the identity of their Senior Accounting Officer, who must certify annually that there are ‘appropriate tax accounting arrangements’ in place. Penalties of GBP 5,000 each are chargeable on the officer and the company for careless or deliberate failure to meet these obligations. Large companies and groups must also publish online a statement of their UK tax strategy, which should be reviewed and updated annually. Penalties are chargeable on the responsible company for failure to meet these obligations
General anti-abuse rule (GAAR)
The GAAR applies to income tax, corporation tax, capital gains tax, petroleum revenue tax, diverted profits tax, apprenticeship levy, inheritance tax (IHT), SDLT, and ATED, but not VAT. It is targeted at changing behaviour of taxpayers who enter what might be considered to be abusive tax avoidance arrangements. The process includes a quasi-judicial review of the arrangements, the outcome of which must be used as evidence in any related tax litigation.
The government has stressed that the GAAR is only intended to apply to abusive tax avoidance arrangements, which are measured by reference to various indicators, some of which are subjective.
Statute of limitations
For companies that are members of medium or large groups, there is generally a period of one year after the statutory filing dates for the tax authorities to start an enquiry into any aspect of the return. For other companies, enquiries can be started up to 12 months after the date of actual filing. These periods are extended for returns submitted after the filing deadline, that are amended by the taxpayer, or where an issue is subsequently discovered that was not sufficiently disclosed within the standard period. Longer periods apply in the event of inadequate disclosure or deliberate misfiling.