The main complaint when the legislation was introduced was that companies would have to pay based on predictions of future profits, unlike income tax self-assessment where payments on account are based on last year's income. We have had the first major payment date (14 July for December year-end) and are approaching the second on 14 October. So how was it for you? My experience is that there have been a few teething problems. At least one inspector phoned the company concerned to query the payment, and appeared to have no idea that an instalment regime now existed! More commonly, the collector allocated payments to the wrong accounting period - and in some cases made a repayment. This has led to a lot of confusion, not to mention potential interest exposures for the unwary. However, the problems should not be insoluble with some goodwill and common sense: the Revenue could do more to ensure payslips are issued, and tax advisers could ensure their clients notify the collector as to which period the payment is allocated. The group-payment arrangements have also caused a few hiccups. In some cases, requests submitted more than two months in advance had to be chased a few days before payment was due. In other cases the Revenue were clearly doing their best to process applications received after their deadline. The major issue here seems to be the approach which the Revenue has taken to the drafting of what should be a simple administrative convenience. As expected, it was the actual calculation which caused the real grief. The difficulties were not confined to major entities - I looked at the calculation for a relatively small subsidiary of an overseas group, where the existence of a foreign currency loan from the parent led to all sorts of complications with potential for exposures and the possibility of claiming deferral relief: out of all proportion to the likely tax payable. More commonly, there were difficulties with potential acquisitions and disposals, and with volatile business profits. In some cases, companies probably paid too much tax because no one wanted to admit their targets were unrealistic. Is it really necessary for companies to jump through these hoops? If we stand back for a minute, surely the basic aim is to enhance the government's cashflow. This could just as easily have been done by basing instalments on last year's profits - but that would have led to a higher headline rate of corporation tax, which dare I say would not have been politically acceptable. (Interestingly, that is precisely the approach taken in Denmark - pay early and get a discount, or pay after the year end at the higher standard rate. Sounds too simple to me!) So we are stuck, at least for the moment, with having to base instalments on estimates of current year's profits. But even then, should companies really have to incur the costs of performing what, at the end of the day, will probably be meaningless estimates just to calculate instalment payments? The driver here is the threat of the penalty regime - which the Revenue has said it will apply only in the most serious cases. Unfortunately, the confidence of the profession has been somewhat dented by its experience of income tax self-assessment, so companies are being advised to play it safe and undertake the work to justify their instalment calculations. Surely, there must be a way out of this maze. If the government's main aim is to protect cashflow, and commerce's objective is to do the minimum amount of work each quarter, why not have a safe harbour just for penalty purposes? Then companies would have a choice: they could do the calculations, or simply pay based on last year's tax. If they chose the latter route, they would be accepting that this means taking an interest risk - but if the interest rate is known and commercial, no-one should lose out significantly. How about it, Gordon? - Heather Self is the chairman of the Chartered Institute of Taxation's technical committee and a partner with Ernst & Young.
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