4.6 Income, corporation and CGT

Question 1

When must an individual’s tax return be submitted for the year to 5 April?

Answer 1

31 January of following year

Question 2

How is an individual’s tax paid?

Answer 2

Two instalments, plus balancing payment

Eg tax due for 2018/19 tax year

31 JANUARY 2019:
First payment on account (1/2 17/18 tax bill)
31 JULY 2019:
Second payment (1/2 17/18 tax bill)

31 January 2020 (following year)
Actual per tax return for y/e April 19 = balancing item 31.01.2020

(plus first payment on account for 19/20 tax year)

Question 3

What is the position with assessments and determination?

Answer 3

 If individual fails to prepare and submit tax return, then HMRC can assess the individual for tax
 The individual can appeal and, provided that returns are submitted, HMRC can agree a different amount (usually a reduction)
 If returns are not submitted, HMRC are entitled to determine tax
 The determination is a legally enforceable debt, even if incorrect
 Appeal process against determination

Question 4

When would a trustee complete a pre appointment tax return on behalf of a debtor?

Answer 4

 Where it is suspected a refund may be due
 Where it is in the interests of the other creditors

Question 5

What is the position of HMRC in a personal insolvency?

Answer 5

 HMRC quantify tax due to relevant date and submit claim to trustee
 Unpaid income tax is ordinary unsecured claim
 In an IVA, both sets of standard conditions provide for the claim to include tax due to the following 05 April
 Creates a “tax holiday”
 Addressed by terms of IVA

IVA protocol:

The HMRC final claim in the arrangement will also include the self-assessment balancing adjustment for the tax year in which the arrangement is approved, due with the self-assessment return on 31 January of the following year.

From the date the arrangement is approved to the 5 April ending that tax year, the debtor must pay their monthly charge for income tax/NIC, as it appears in the income and expenditure statement, to the Supervisor for the benefit of the arrangement.

No non-preferential dividend will be made until (i) HMRC has received a self- assessment return for the tax year in which the arrangement is approved

Question 6

What is the position with HMRC post appointment - debtor?

Answer 6

Responsibility for preparation of debtor’s annual tax return rests with debtor post appointment

 Responsibility for payment of tax post-appointment self- assessment income tax rests with debtor (unless TiB is trading)

Only one set of personal allowances and these remain with debtor
 TiB doesn’t get a new set of tax allowances

Question 7

What is the position with HMRC post appointment - trustee?

Answer 7

No responsibility for annual tax return post appointment unless “taxable event”
 Chargeable gain on the disposal of an asset
 Trading profit
 Interest paid gross

Payment of tax on income/ capital gain during appointment ranks as an expense of the appointment

 Only one set of personal allowances and these remain with debtor - TiB pays tax in full

Question 8

What is the position re tax refunds in bky?

Answer 8

Tax refunds due for periods pre-insolvency are an asset realisable for the benefit of the estate

Refunds for periods after commencement may be claimed as income
 Subject to an Income Payments Order (or Arrangement)

 Subject to Crown set-off
 Account taken of monies owed or due between the parties; only the
difference is a provable debt or realisable asset

Question 9

What is the position re tax refunds in IVA?

Answer 9

First applied against any other HMRC claim in the arrangement.\

Secondly any surplus then repaid to the debtor must be paid to the supervisor for the benefit of the arrangement.

Question 11

When does a company’s accounting period cease?

Answer 11

 End of 12 months since beginning of current period
 Accounting date of the company
 Cessation of trade
 Ceasing to be UK resident
 Ceasing to be in administration
 Ceasing to be within the charge to Corporation Tax

Question 12

What is the deadline for submitting a corporation tax return?

Answer 12

12 months after the end of each accounting period

(if accounting period longer than 12 months then need 2 return)

Question 13

When is corporation tax payable?

Answer 13

9 months and 1 day after end of each accounting period

Therefore may need to make payments on account

Question 14

What are filing deadlines for companies?

Answer 14

First accounts at CH - 21 months after the date the company has registered at CH

File annual accounts at CH: 9 months after company’s financial year ends

Pay CT to HMRC or tell them that co does not owe any money - 9 months and 1 day after the company’s acting period ends.

File a company tax return - 12 months after accounting period end.

Question 15

When will HMRC make a determination for Corporation tax?

Answer 15

If a tax return is +6 months late,

HMRC will estimate the tax due and issue a “determination”

Question 16

What are the implications of a determination of corporation tax?

Answer 16

The determination can not be appealed

 The company must pay this determination and file a tax return
 Following which HMRC will recalculate the interest and penalties payable

 But not the amount of tax

 Penalties are:
 6 months late =10% of estimated tax
 12 months late = 20% of estimated tax

 The company can appeal against late filing penalties if here is a “reasonable excuse”

Question 17

What is the HMRC claim in an insolvency?

Answer 17

Amounts due for period up to the relevant date = provable debts

Amounts due for periods after the relevant date = An expense of the
insolvency process

 Where trading has been continued (CorporationTax)
 Where assets have increased in value (Capital Gains Tax)

Question 18

What is the position re pre appointment returns?

Answer 18

Responsibility rests with company for preparation and submission of returns up to the relevant date
 Ideally company should bring accounts up to date to relevant date and submit returns to HMRC
 But arguably unnecessary if no dividend to ordinarycreditors

Only in certain circumstances would liquidator/ administrator seek to complete on behalf of company
 Where this would generate a tax refund
 Where reducing HMRC claims would benefit the general body of ordinary unsecured creditors

Question 19

What is the effect of insolvent liquidation on tax?

Answer 19

Immediately before the entry into liquidation, the accounting period ends and a new one starts

Accounting periods continue at 12 month intervals from the date of commencement until the winding up is complete

Liquidator has 12 months from each anniversary to submit tax return:
 Payment due 9 months after period end

Liquidator submits CT600 (std tax return form) with supporting R & P

 Tax payable on income ranks as expense of the liquidation as a “necessary disbursement” (i.e. ahead of the liquidator’s remuneration)

Question 20

What is the effect of administration on tax?

Answer 20

Immediately before the entry into administration, the accounting period ends and a new one starts

 Accounting periods continues until the company’s next accounting date,
 NOT for a full 12 months

Thereafter, periods run for 12 months, until administration ceases
 Returns due 12 months from each period end
 Payments due 9 months after each period end

 Administrator submits CT600 with supporting R&P
 Tax payable on income ranks as expense of the administration as a “necessary disbursement” (i.e. ahead of the administrator’s remuneration)

Question 21

What is the effect of receivership on tax?

Answer 21

The appointment of an administrative or LPA receiver does not ordinarily affect the accounting period
 Unless the receiver causes trading to cease

 Company officers retain responsibility for returns: due 12 months from each period end
 Payments due 9 months after each period end

 Tax not payable as expense of receivership
 Tax due in course of receivership rests as liability against the company
 Forms a claim in any subsequent liquidation

Question 22

What is the impact of tax on receivership and liquidation?

Answer 22

Tax charge due while company in receivership is either an ordinary claim or an expense of the liquidation depending on whether it occurs pre or post commencement of liquidation

Receiver will need to account to liquidator to allow liquidator to quantify tax claim/charge

Timing of asset disposals crucial -trading losses may be set off against:
 Chargeable gains in the same or an earlier period
 Future trading profits, from same trade
 NOT Chargeable gains for future periods

Question 23

What is the tax position re bank interest for companies?

Answer 23

 All interest earned should be paid gross
 Requirement to account to HMRC annually for tax on interest (Form
CT61)
 Do so to company’s local tax office local as notified to IP

Question 24

What is the position re crown set off?

Answer 24

 Cannot set off pre appointment refunds against post appointment liabilities
 Or pre appointment liabilities against post appointment repayments due

Question 25

What is the position of capital gains tax in personal insolvencies?

Answer 25

Gains usually only encountered on the sale of property
 NO CGT ON MAIN RESIDENCE

 Tax as expense of appointment
 Take tax advice on timing of disposal and calculation of tax due

 Make return by letter to tax office local to trustee not debtor (opposite for co)
 Entitled to usual rules of calculation

Question 26

What is the position of tax on chargeable gains in corporate insolvencies?

Answer 26

Paid under the CorporationTax regime

 Calculated in a similar manner as CGT

Corporation tax on chargeable gains in liquidation and administration
 Payable as an expense, after the office holder’s remuneration

Question 27

What is the position re historic losses, gains etc?

Answer 27

Liquidation and administration trigger a new tax accounting period

 Historic losses cannot be carried forward into the new accounting period to set against any capital gains made by the office holder

 CGT on the disposal will be payable by the office holder as an expense

 Timing of entering insolvency / asset disposals important where there
have been increases in asset value

 Alternatives to liquidation/ administration may be attractive for tax reasons:
 CVA
 Receivership(whereavailable)