All companies are required by law to maintain records of those company transactions in a manner that must be adequate to enable the company to produce an accurate Company Tax Return. Company tax records must be kept for a minimum of six years from the end of the accounting period and longer if the accounts are submitted late or being enquired into by the Inland Revenue.
Company tax records must include all original sales receipts and purchase expenses. Under the Companies Act legislation registered companies must also keep accounting records.
Companies are responsible for calculating their own corporation tax liability and paying the corporation tax without prior assessment by the Inland Revenue. Companies which fail to deliver their tax return by the statutory fling date which is normally 12 months after the accounting period are liable to penalties.
An accounting period normally being 12 months - can be shorter but never longer. Should a company submit the CT600 Corporation Tax return form without the accounts then it is treated as not having submitted a tax return form.
Current Company Tax Return Forms
The latest version of the CT600 form for 2007 has been available for download from the Inland Revenue website since 31 August 2007. The Corporation Tax Return Form CT600 Version 2 contains two small changes from the previous 2006 version.
CT600 (short) for small companies has an additional box on Page 1 so that a company which is a member of a group other than a small group can identify itself. The same additional box is on CT600 plus a new box on page 3 of the 8-page form so that a company with ring fence profits can show the ring fence profits included in its figure of total profits.
There are no changes to other forms in the CT600 series at present and all the CT600 Supplementary Pages published in 2006 remain valid and will probably remain so until at least after the 2008 Chancellor Budget.
Corporation Tax Rates
While the main rate of Corporation Tax remained at 30% in 2006 and 2007 which will be reducing to 28% in 2008. The small company corporation tax rate applicable to companies with annual profits less than 300,000 pounds was increased from 19% in 2006 to 20% effective on profits earned after 1 April 2007 and is set to increase further on 1 April 2008 to 21% and to 22% from 1 April 2009.
Corporation Tax on ring fenced profits being income and gains from oil extraction activities or oil rights in the UK and UK Continental Shelf remain at 19% for small companies and 30% for larger companies. Interest is charged on late payments and at a lower rate on installment repayments of Corporation Tax as is the practice on all late tax payments.
Accounting Periods straddling 1 April
The effective date for changes in the Corporation Tax rate applicable in recent years has been 1 April each year as opposed to the 5 April for unincorporated businesses. For companies with accounting periods that straddle the 1 April separate calculations are required for the period before 1 April and after 1 April based upon the number of days in each accounting period. As a proportion of 365 (366 in leap years such as 2008)
No Corporation Tax Due
Companies are required to advise HMCE by either submitting a company tax return or informing them by completing the HMCE form for this purpose or at the very least returning the payment slip marked with no payment to be made. All communications should state the corporation tax payment reference which can be found on the payment slip. This reference number is specific to each accounting period and must be quoted accurately.
Filing Corporation Tax Return Online
Most companies and their agents can file company tax returns online. The computations, financial accounts and other supporting documentation must be sent in PDF format with some approved software products being sent in XBRL format. Filing the company tax return online has the advantages of speed, can be done 24 hours a day and the software calculates the tax liability.
Using the CT Online service also allows the company tax position to be viewed including any interest or penalties that have been charged. Company details such as telephone, fax, addresses and email addresses can be changed and agent details can be added or changed. Authorised agents can also view client company corporation tax positions and liabilities.
Inland Revenue enquiries into Company Tax Returns Enquiries into Company Tax returns are governed by rules and codes of practice. HMCE have at least 12 months from the statutory filing date to commence an enquiry when the company tax return has been submitted on time and longer if the return is submitted late.
Companies are advised in writing when an enquiry starts and ends. If no adjustments are required HMCE advise the enquiry has finished. Any adjustments are also advised in writing and the company then has 30 days to file an amended Company Tax Return failing which HMCE will amend the return.
At any time during an enquiry a company can apply to the Inland Revenue Commissioners for an enquiry to be closed. Separate codes of practice exist for local offices and specialist compliance offices
Begin by building your documentation system. There are more than 300 tax deductions available to small business owners. By converting many of your personal expenses into legitimate business deductions, you can have a HUGE impact on you financial well being. For example, lowering your expenses makes it easier to become financially free (or as Robert Kiyosaki says it "Get out of the Rat Race").
For those of you who are in debt, the money you save by paying the correct amount instead of over-paying your taxes can be used to accelerate down your debt. For those who are looking for ways to put more into a retirement plan so that their financial future is secure, you can use the tax savings to fund your retirement.
Yet, learning additional deductions is only part of the process. You have to maintain the proper documentation in order to substantiate these deductions. If you don't properly document your deductions, you risk losing them in the event of an audit. The Burden Of Proof
With all the court TV shows that are on, most people are familiar with the concept of Burden of Proof. Simply put, in a criminal case, we are innocent until proven guilty. In other words, the burden of proof is on the state to prove our guilty.
However, when it comes to justifying your tax deductions, the burden of proof is on YOU, the taxpayer. IRS examiners are not required to help you keep your records. It is your responsibility to prove and properly document them. The consequences of not following the tax laws are huge penalties. For example:
a) One-half of one percent a month delinquency penalty during the period that you fail to pay the proper amount of taxes
b) 20% of underpayment attributable to negligence or disregard of the rules or did not have a reasonable basis for the tax deduction;
c) 75% of any underpayment attributable to fraud
d) You may not deduct some of the interests paid to the IRS, if they were due to a business tax deduction on your Schedule C.
Tax Deduction Log
Yet an amazing thin happens when you keep a tax log or tax diary. The burden of proof shifts from you, back to the IRS. I have heard story after story of IRS auditors cutting an audit short once the taxpayer has presented them with a complete tax log and documentation system.
Here are some Strategies to Master the Records Requirements (and have fun in the process of maximizing your tax deductions). Keep in mind that you easily delegate this work by teaching it to your assistant (C.A.) or book keeper.
1. Build a documentation system.
No matter what form of business entity you have ('S' corporation, 'C' corporation, LLC, or, God-forbid, a sole proprietorship, you need three separate and distinct tax records. Permanent Files, Regular Files, and A daily diary.
Permanent Files: These include your prior year's tax returns, stock purchases and sales, equipment purchases, and sales and similar entries. Generally, you want to keep any record that relates to more than one tax year in your permanent file. If you purchase property, your permanent files should include the purchase documents, closing statements, deeds, and other expenses related to the purchase.
Regular Files: These include time sheets, invoices for part-time help, receipts, invoices, canceled checks and other corroborative evidence.
Daily Diary: Your daily diary, which can be your appointment book, is the focal point of your documentation system. This is especially true if you operate a personal service business. The smaller the business is the more important this information becomes. Your daily diary should include: All of your appointments, Where and when you travel, Where you go by automobile, and Where and when you entertain business contacts.
2. Use Three-Part Checks
Keep a separate business checkbook and use three-part checks. Regardless of your business form, whether a corporation or sole-proprietorship (Ugh), the three-part check is necessary to build good, easy to use records in your regular files.
a) Send part one, the original of the check to the vendor. b) Staple supporting evidence (receipts or invoices) to part two and file it alphabetically in the vendor file. c) Put part three in a numerical file for later viewing by the IRS (did somebody say audit??) and reference by you.
3. Keep form 1099 Information Separate
If you have both W-2 and 1099 income, keep your 1099 information separate. This includes the source(s) and amount of 1099 income and all of your business expenses. 4. Keep a separate Tax log or Diary
To complete your documentation system, you must keep a separate tax log. This consists of a permanent record that is separate from the receipts you keep for each item. I'll list the major business expenses below and give examples of the documentation you should keep.
Home Office Deduction - You should take several pictures of your office (showing that it is separate from your living area) and keep them in a permanent file. You should also keep the printout from your realtor showing comparable cost of office space in your area.
Meals Out - You should answer the following five questions. Who? What? When? Where? Why? You can go high tech (an excel spreadsheet), low tech (a yellow pad) or medium tech (a word processing document). At the restaurant, I make a quick note on the credit card receipt. Three of the questions are already answered, so the note often looks like this "Fred regarding his LLC". After returning from the restaurant, I give the receipt to my bookkeeper or assistant. She transfers the information from the receipt to the tax log. (You may choose to do this yourself) Now my meal records are audit-proof.
Auto Mileage - The log should contain the following information: Date, starting mileage, ending mileage. Once again, you can use any level of technology you prefer.
Travel - Keep your plane tickets, parking and cab receipts (esp. if over $75), and the workbook or literature provided to you by the seminar promoter. I also use the 5 question log above to document my travel expenses.
Supper Money - If the cost of the meal is less than $75, you don't need to keep a receipt. Because I often use the supper money deduction on my teleclass nights, I always put the teleclass info in my calendar. I usually pay cash for the meal and reimburse the money after the fact.
I enter my cash outlays regularly and every month or so, I have my book keeper cut me a reimbursement check. Keeping a good documentation system is a worthwhile investment. It makes you conscious of the deductions you would otherwise miss, it keeps you organized and it keeps you audit-proof. That's a great combination.
Both Terry Cartwright & Drew Miles are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Terry Cartwright has sinced written about articles on various topics from Payroll Accounting, Tax Software and tax. Terry Cartwright is a qualified accountant in the UK and provides through his website tax efficient. Terry Cartwright's top article generates over 90500 views. to your Favourites.
Drew Miles has sinced written about articles on various topics from Free Credit Report Score, Personal Finance and Free Credit Report Score. I have spent years studying the tax code looking for ways to help people lower their tax bill and keep more of what they earn. I have uncovered several tax deduction strategies that can be used by anyone to slash their tax bill and save thousands of dolla. Drew Miles's top article generates over 49500 views. to your Favourites.