Examination of Witnesses (Questions 160
WEDNESDAY 13 MARCH 2002
160. Earlier you mentioned, I think, that there
were problems in relation to anticipation of profit levels.
(Ms Self) Yes.
161. Can you expand on that?
(Ms Self) Yes. Companies above a certain threshold
have to estimate and pay their corporation tax on a current year
basis. If, for example, a company has a seasonal trade and has
to estimate a payment in July when it knows that the critical
impact on its results would be how good the Christmas trading
is, it is very difficult for it to make anything like an accurate
assessment of its profits. Equally, if a company makes a significant
disposal close to the year end, that will mean that its total
profits for the year will be a figure it could not have predicted
part way through the year, and it will be charged interest from
the earlier instalment date even though it could not have known
the outcome until much later in the year.
162. Is there no subsequent correction mechanism?
(Ms Self) There is, but the interest is applied from
the original instalment date and is based on the actual outcome
once that is known with hindsight, so every large company will
either pay or receive interest from the Inland Revenue.
163. Are you making particular representations
(Ms Self) We have participated very actively in the
Self Assessment Consultative Committee. As a result of that there
was a significant improvement made in 2000 when the differential
between the rate of interest paid by the Revenue and paid to the
Revenue narrowed significantly, and we were very pleased to see
164. Are there still outstanding matters you
would like to see done in this particular aspect?
(Ms Self) I think my disappointment is that there
has not, to my knowledge, been a serious attempt to measure the
burdens on companies of complying with the quarterly instalments
as compared to the Exchequer benefits of receiving payments in
advance in that way.
165. Who should do that?
(Ms Self) I think it should be done by the Inland
Revenue but with significant input from bodies such as ourselves,
the CBI and other representing companies.
166. Have you made that suggestion?
(Ms Self) Yes.
167. What sort of response has it met with so
(Ms Self) The latest minutes of the Self Assessment
Consultative Committee state that there are no formal plans to
consider a prior year basis.
168. That is not quite the same though, is it?
Are you asking for an assessment to be done?
(Ms Self) Yes, but we have not been able to persuade
anyone whether there should be an assessment and whether it should
be looked at in more detail.
(Mr Whiting) What we have found is a general unwillingness
to contemplate that companies should base perhaps the first two
of their payments on the past year to save them trying to project
forward in a way. We would like to see at least a willingness
to contemplate a change in the system and to look at the system
that Heather has alluded to.
169. How many companies do you think are affected
by this particular problem?
(Ms Self) It is a relatively small number in absolute
terms. The vast majority of companies are outside the quarterly
instalment payment system but it is all the largest companies
in the UK and, for some very large companies, there is a significant
amount of work involved. I have not yet seen any analysis of how
accurate companies were in making their assessment for the first
two years of self-assessment and I would like to see that information.
170. That would be rather crucial.
(Ms Self) Yes. If the outcome is that companies were
able to estimate with reasonable accuracy then I would stop asking
for this to be looked at in more detail, but my suspicion is that
there will be a large number who have significantly overpaid or
underpaid their tax during that period.
171. What is the basis for that suspicion?
(Ms Self) Information from colleagues within the Institute
and within the CBI, in particular companies such as mergers and
acquisitions departments of major banks where, part way through
the year, they have no idea how many deals will be done towards
the end of the year and I have spoken to tax directors who have
said that it is almost impossible to make a reasonable projection.
It is not the case for all companies and I am not saying it is
the case for me personally in my job.
172. Do you have any suspicion, to use your
word, as to which way the balance might be going from the Inland
Revenue's point of view? Is there more under or overpaying?
(Ms Self) This is no more than a guess but I suspect,
if you were to measure the actual corporation tax receipts as
against anticipated receipts by the Treasury, that may give some
indication. I seem to recollect that in January 2001 the receipts
were rather higher than the Treasury had been expecting whereas
in the current year they had been rather lower, and I do wonder
whether that may be to do with the estimates.
173. That is down to a lot of different factors,
is it not, and I suspect this one is quite a small part of the
(Ms Self) Yes. It is something which can only be seen
by looking with hindsight at how agreed corporation tax liabilities
compare to the estimates that companies have made, and we are
only just coming to the end of the review of the first couple
of years of corporation tax assessment. There will be very few
companies who have more than one year agreed yet.
174. So you will carry on collecting data from
(Ms Self) Yes.
175. And feed it into the consultation process?
(Ms Self) Indeed.
(Mr Whiting) If I may add to this, certainly my own
firm thinks that companies have tended to overpay to be on the
176. We expect our inquiry to run for another
couple of months so if you do collect data in that time we would
like to have a look at it as well. We have to leave it there but
can I thank you for coming today, for your memorandum and for
the constructive contribution you have made.
(Mr Whiting) Thank you very much for the opportunity.