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Comments from ACCA
February 2006

ACCA is pleased to comment on the proposals contained in the consultation document of the above title. In preparing these comments we have reviewed the proposals from both the tax and company law perspectives. Our response also reflects the feedback which we have received from senior members of ACCA who have expertise and experience in both areas. 

At the outset we should say that we are encouraged by the fact that the Government is trying to reduce superfluous bureaucratic burdens for companies and their advisers. We would not wish to discourage the Government from further initiatives in this direction.  

But in this particular case, we feel that the proposals being put forward would not bring about any meaningful reductions in burdens – if anything, the opposite is more likely to be the result. As for the projected savings of £100 million that the proposals are intended to achieve, we already know from the discussions we have had with the ‘project team’ for this consultation that much of these savings, if they indeed materialise, would be made up of savings made by Government Departments and not, as the paper tries to suggest, by businesses themselves. Given this, we are sceptical about the benefits which would in practice accrue to businesses from the adoption of a single filing date. 

The proposals are in fact misguided to the extent that they only aspire to harmonise the dates on which the company’s accounts are submitted to the two Government agencies. Doing this would do little if anything to reduce costs and administration – the real work, and the bulk of the associated costs, are incurred in the preparation of the accounts, not in filing them. For most companies there is not generally any problem in filing accounts for year 1 when the year-end work is being done for year 2. The current cycle in this respect works reasonably well in our view and does not require changing.

In addition we are sceptical regarding the reduction in the enquiry window, given the recent comments arising from Veltema, which causes us to wonder whether we can ever have certainty in the self assessment process. We were promised such certainty but it then appears to be taken away when HMRC ‘discover’ they have not done their job properly and then blame the taxpayer for not alerting them. 

Proposals for alignment

As outlined above, the proposals seem to be driven by the objective of saving costs for Government. There will not, in our view, be significant savings for businesses themselves as the result of a single set of accounts being filed. There will still be overlap as Companies House will in many cases receive an abbreviated set of accounts – NB abbreviated accounts are to be retained under the current company law reform proposals – which will mean that different sets of accounts will continue to be filed with the two agencies. If both sets are filed at the same time what are the chances of the individual recipient bodies being allocated the wrong set of accounts by the electronic filing process, with potentially serious consequences for a company if a full set of accounts are incorrectly posted on the public record?

It is not clear from the document whether there is intended to be a facility to file the corporation tax return on line at the same time or whether this would remain a manual filing. If there is only to be manual filing for the return, we would query where the saving for the client would be – if they have to send the return and the computations in the post to HMRC, why not also send the accounts by the same means?

There cannot be any business reason for a mandatory single filing for most companies other than the very smallest, but an optional single filing with no deadline reductions could be made available to those companies which wished to file a single set of accounts. This would require the extension of the filing deadline for such companies which wished to take advantage of it. Hence the single filing would be most effective if made available to small companies only.

In summary, we do not think that a single on-line filing system would be of any benefit to companies with two or three employees upwards.

Superficially, the alignment of the filing dates would appear to make sense as there would be fewer deadlines to deal with. But, given the demands of  corporation tax computation, shortening the filing/submission date to either 7 or 9 months, to coincide with company law deadlines, would be extremely difficult for companies and their agents to deal with.
We believe that the Government needs to recognise the practicalities of the annual business cycle when reconsidering its proposals.. Most owner managers are busy running their businesses, trying to stay afloat and generate profit and therefore tax. The imposition of new, shortened filing deadlines would in fact make it harder for them to meet their compliance requirements, not easier. With respect to the comment about ‘efficiency’ made in paragraph 3.7 of the document, it is our experience that queries about accounts and tax computations often become a problem area precisely because of the length of time that HMRC is able to take to raise those queries – where HMRC asks about minor and trivial matters two years after the event, it is often inevitable that memories will fail. If the Government is seeking to improve efficiency, then it should consider reducing the HMRC inquiry window, regardless of any reform of filing dates. If it does, in the event, push through a reduction in the filing deadline against the background of strong business rejection of the idea, then HMRC should have its enquiry window reduced by the mirror image length of time, i.e. to the requisite seven or nine months. 

In our view the main concern for the Government should be the receipt of Corporation Tax, rather than bringing forward and aligning the filing deadlines. Unless the Government intends to use any accounting and tax filing alignment as an excuse to engineer earlier tax payments, there is no practical reason to pursue the alignment exercise any further.

Unincorporated businesses

The comment regarding unincorporated businesses is misleading, as some unincorporated businesses will have longer to file than a company, depending on their accounting date.

Transitional arrangements

We have received mixed comments on the issue of transitional arrangements. Accordingly, we do not comment on this matter, especially as we do not consider the proposals business-friendly. 

Earlier certainty

This would be welcome if it were achievable. However, the attitude of HMRC towards discovery reduces any suggestion that certainty can be achieved once the enquiry window is closed.

Groups
 
In addition to the general concerns we have over aligning deadlines we wish to point out the current twelve months filing deadline is extremely tight for groups of companies, especially where there are overseas subsidiaries. It seems to us that in many ways the Government is missing the target in focusing on this issue. The clear issue is tax complexity and the need to simplify the tax system, as mentioned above.

Summary

We do not support an alignment of filing dates on the terms put forward in the document. The proposals would reduce the already tight deadlines that exist for companies. We would happy for an optional system to be introduced for small companies with an extended accounting filing deadline which was aligned at twelve months. But the root problem is the complexity of the tax system – what would help companies would be simplification of the tax law. This is where the Government should be focusing its energies.

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