Corporation tax returns for extended accounting periods – practical issues
Following reports from our members, we consider the practical issues for companies with extended accounting periods.
Schedule 18 of the Finance Act 1998 sets out the deadlines for the submission and amendment of corporation tax returns. For periods of account lasting 12 months, the submission deadline is normally 12 months after the end of the accounting period. But this is extended by Paragraph 14 to twelve months from the end of the accounting period when the accounting period isn't longer than 18 months, and 30 months from the beginning of the accounting period when the accounting period is longer than 18 months. In most cases, Paragraph 15(4) sets the deadline for a company amending as 12 months after the filing date per above.
So, if a company had a period of account from 1 January 2022 to 30 June 2023, it would have two corporation tax accounting periods and would need to submit two corporation tax returns (one for the year ended 31 December 2022 and another for the six months ended 30 June 2023). Both returns would be due for submission by 30 June 2024 and the company would be able to file amendments until 30 June 2025.
Following feedback from our members, we have been in discussions with HMRC regarding the practical issues that occur when companies have a period of account lasting more than 12 months. This includes where HMRC has issued a late filing penalty for the first corporation tax accounting period that is not due. After our feedback, HMRC has clarified the position in issue 112 of agent update.
What practical issues do agents need to be aware of?
HMRC has a legacy computer system for corporation tax. It will automatically assume that a company has a filing deadline of 12 months after the end of the corporation tax accounting period, even where Schedule 18 of the Finance Act 1998 provides otherwise.
Any changes to this for extended accounting periods have to be manually overwritten by HMRC staff on the computer system. So, to use the example above, HMRC needs to manually override the filing deadline for the corporation tax return for the year ended 31 December 2022 so that it is 30 June 2024, rather than 31 December 2023.
To allow HMRC time to make the necessary changes to prevent a late filing penalty being issued, it is advised that the company or its agent notifies HMRC before the ‘standard’ filing date. Using the above example, for the corporation tax accounting period of 31 December 2022, HMRC should be notified before 30 September 2023 so that the changes can be updated before 31 December 2023 and the system recognises the correct deadline of 30 June 2024.
What about amended returns?
Whilst the HMRC computer system can be overridden in respect of the filing deadline to avoid late filing penalties being issued, we have been advised that the limitations of the legacy computer system mean that it is not possible to override the deadline for amended returns, when these are submitted electronically.
This means that it is not possible to amend a corporation tax return electronically after two years from the end of the corporation tax accounting period, even though the statutory deadline is later than this. Unfortunately, it will be necessary for any amendments after this date to be sent by paper. Whilst this may not make a huge difference for a single company, if an amendment is needed for a group of companies (possibly including claims for group relief), this could result in additional costs for agents.
To use the above example, if you are amending the corporation tax return for the corporation tax accounting period ended 31 December 2022, it would be necessary to do so by 31 December 2024 electronically. Amendments between 1 January 2024 and 30 June 2025 would have to be submitted by paper.
HMRC is aware of the limitations of its corporation tax computer system, and plan to replace it in due course.
Let us know your views
We welcome members’ input to inform our work on consultations or other tax-related matters – email us to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.