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Cash not included
The distributions legislation is concerned with transactions between a company and its members. In particular, TA 1988, s 209(4) can apply where a company transfers an asset at undervalue to a member. For many years, HMRC held the view that in s 209(4), assets could include cash. This view is not mentioned in HMRC's Company Taxation Manual, but some external tax professionals are aware of it.
HMRC have recently had to reconsider this view in the context of some current litigation. Counsel has advised that the view is incorrect, and that in s 209(4), assets do not include cash. HMRC accept this advice, and will adopt the revised view. This brings the view of HMRC into line with the view taken by some external tax professionals.
When the Company Taxation Manual is rewritten shortly, the revised text will include this point.
The reference in s 339(1)(a) to s 209(4) was made as a consequence of the incorrect view taken by the Inland Revenue. HMRC now accept that reference is inappropriate.
The Tax Faculty points out that the revised interpretation means that s 339(1)(a) will need to be repealed as it treats a company cash donation to a charity as not being a 'qualifying donation' if it is treated as a distribution under s 209(4). As this treatment no longer applies, 'it will always potentially be a qualifying donation' provided it satisfies the other conditions.
www.hmrc.gov.uk
Good news
HMRC have published the report on their consultation with small and medium-sized enterprises, 'Working towards a new relationship', which was launched at Budget 2005. They announced the following:
- The possibility of a single process for filing company accounts for both HMRC and Companies House purposes is under consideration. HMRC are consulting on the alignment of filing dates for accounts and returns and, to give businesses certainty sooner, on aligning the enquiry date with the filing date. Copies of the consultation document can be obtained from Steve Coad, K104 Kelsall House, C/o Coalport House, Stafford Court, 1 Stafford Park, Telford TF3 3BD, e-mail: steve.coad@hmrc.gsi.gov.uk. Responses are due by 3 March 2006.
- Enhancements to the employer's CD-ROM which will include further calculators for statutory payments, and an interactive P11, completed for each employee, that will automate many of the procedural steps involved and eliminate significant numbers of arithmetical or transcription errors.
- A reduction in the reporting requirements for form 42 that will reduce by 90% the number of new companies having to complete the form. HMRC will no longer require a form for the first issue of shares in most cases. The reporting requirements for certain share acquisitions by directors have also been relaxed.
These measures will count towards the reduction in administration burdens for HMRC that will be published next year. HMRC are also embarking on long term work to transform its relationship with small and medium sized enterprises, namely:
- They are working with small and medium-sized enterprises to measure administrative costs of complying with the tax system. When this work is complete HMRC will announce targets to reduce it, with clear milestones against which progress will be monitored.
- The 'whole customer view' project will be taken forward, with HMRC hoping to offer a single registration process and notification of change in circumstances, and a complete record of contact between business and HMRC.
This is all very good news says Francesca Lagerberg, national tax director, Smith & Williamson. She says that it is especially 'encouraging that the number of companies which will have to complete forms 42 is to be reduced', although she adds that if HMRC had 'consulted the profession first about form 42 before pushing it through, they would not now have to be making such changes'. Overall, she hopes that this is just the beginning of many tangible improvements in the tax system for small businesses.
HMRC press release and HMRC 'Aligning filing dates for companies — consultation' 29 November 2005
