In late March, the Government announced an extension to the deadline for filing annual accounts with Companies House. However, as yet no corresponding extension has been granted to the HMRC deadlines for tax payment or filing. With a company’s accounts being a key component in preparing the tax return, businesses should be mindful of the timelines for submission of each if utilising the extended Companies House filing period.

Companies House filing extension

Since 25 March 2020, companies affected by the COVID-19 pandemic have been able to apply for a three-month extension for filing their annual accounts, with effect until 5 April 2021. The extensions apply to companies, unregistered companies, overseas companies, limited liability partnerships, limited partnerships, eligible Scottish partnerships and a number of other less common entities.

There have also been a number of extensions to various other Companies House deadlines, explained in more detail at Companies House. However, it is the accounts filing deadlines which are most likely to impact tax filings. For private companies and limited liability partnerships, the deadline has been extended from 9 months to 12 months, and for PLCs, from 6 months to 9 months. 

Impact on Tax filings

A company’s financial statements are the principal starting point in determining a company’s tax liability. This is demonstrated by the fact that the financial statements are one of the statutory documents required to be submitted to HMRC in support of a tax return. For corporates, the financial statements are required to be filed in iXBRL format, meaning they contain identifying tags on the data which can be read by HMRC’s software.

Usually, a business has three months after the accounts filing deadline to file its tax return and iXBRL tagged accounts with HMRC. Many businesses may now be required to make use of the Companies House extension, thereby signing their accounts up to three months later than is typically the case. Given the importance of financial statements to the preparation of a tax return, it is therefore perhaps a little surprising that, at the time of writing, there has not yet been any similar concession from HMRC in terms of the statutory timetable for filing tax returns, or the associated penalty regime for those who fail to meet this timetable. 

Using Corporate Tax as an example; a company with financial statements for the period ended 31 December 2019 would usually need to file these with Companies House by 30 September 2020, and file the tax return by 31 December 2020. Instead, the business could apply to use the accounts filing extension, resulting in the accounts being signed and filed with Companies House on 31 December 2020. Therefore, the tax return would need to be completed and lodged, including iXBRL accounts, on the same day to avoid HMRC penalties being applied! The challenges associated with signing financial statements, lodging these with Companies House, converting them to iXBRL and finalising and submitting a tax return to HMRC all on the same date, should not be underestimated.

Statutory Penalties

In terms of Corporation tax, the UK statute provided for HMRC to levy penalties of £100 in the event of a late filing. This penalty escalates by a further £100 if the filing remains outstanding after three months. At six months late, tax geared penalties of 10% (based on HMRC’s estimate of tax due) can be levied - with a further 10% penalty due after twelve months. If the company has a history of late filing then these penalties can be significantly higher.

Additionally, filing tax returns late with HMRC is not just about the financial penalty - there is the company’s reputation with HMRC to consider as well. HMRC has been extremely sympathetic to a great number of businesses and offered flexible support throughout the coronavirus pandemic. However, without an HMRC concession to tax filing deadlines, the risk of not being able to complete and approve corporation tax returns in cases where the accounts are signed on or near the deadline, does represent a real risk of an HMRC penalty.

There is also additional concern around the statutory time limits placed on certain tax claims or elections. Such claims or elections are often included in the tax return, so if the return is not made by the due date - which can also be the statutory date for a claim to be made - then the strict position would be that such claims would fail. The impact of this could be significant.  

Tax payable  

Businesses with 31 December 2019 year ends, which are not within the large company quarterly instalment regime, should of course ensure they pay their Corporation Tax by 1 October 2020, to avoid penalty interest accruing. This might prove difficult if draft accounts have yet to be prepared and tax provisions calculated. Our advice here is that it is usually preferable to make a “best estimate” payment to mitigate the interest exposure, and our team are happy to assist with such high level calculations. Tax overpaid will attract credit interest of 0.5%.  

HMRC have extended the use of “Time to Pay” arrangements throughout the pandemic and we expect this to continue where a business has engaged with HMRC and can demonstrate a clear inability to pay at the time. However, we are seeing HRMC being less flexible in cases where businesses have not sought to engage with HMRC prior to deadlines being missed.

Such arrangements do require tax filings to be up to date, so the message from HMRC seems to be clear: engage with us to discuss what you owe and we can be flexible in working out a payment plan.

Action to take

Making use of the Companies House extension may be a helpful tool in managing your business affairs at the moment. With the above points in mind, prior to concluding on an extension we recommend discussing with your adviser the pros and cons of doing so.

Get in touch

We recommend that you discuss your accounts and tax position with your adviser as soon as possible. If your accounts are prepared by Johnston Carmichael and are not already in course of preparation, please discuss with our colleagues how best to proceed.

For assistance with calculating tax payments or liaising with HMRC, get in touch with me at Stuart.Thomson@jcca.co.uk, or John McAuslin.