The Crisis in Tax Administration - Assignment Example

Advanced taxation Question In the UK, there are a number of complex tax rules. The country charges gains and incomes that fall under a number of headings that are defined by the statute. There are different reliefs for losses that fall under the different headings. In schedule D of case 1, profits from trade that arise from trade losses are usually calculate in the same manner in which the profits are done. In the case of Alphabet plc, the company should calculate its losses the same way it calculates its profits (Glassberg, Barry and Smyth, 1995 pg 60). For a company that is part of a group companies or a consortium, it may gain a relieve for the losses that are in excess of profits that are taxable and that arise from the company in the accounting period. That will happen as long as there is a company that is in the same group and that has the capacity of the sufficient profits that are acceptable to relief the loss from the loss making company. That can act as an incentive because a group of company is considered as a single company. Therefore, it is prudent for a loss to be offset from the other companies that are making some profits and they are part of the group. The reasoning behind that is that the different companies in the groups are considered different departments of which losses of the different departments of a company are offset against the profit making departments. That will encourage companies to expand their operations into different regions. In most cases, companies usually make losses in the first years of their operations. The encouragement for companies will ensure that employment is created because the opening of new companies will lead to increased employment opportunities for a country. Alphabet wants to acquire a new firm that means that the company will become a group of companies. Therefore, the losses from one company in the group of companies should be offset against the profits of the other companies found in the group (Glassberg, Barry and Smyth, 1995 pg 25). For single companies, the losses incurred by a company are offset in the following years. That will only happen if the company gets a profit in the next financial period. If the company does not get a profit, the losses will be accrued and they will start to be offset the moment the company starts to make profits. That is a fair deal from the part of the government because it ensures that companies do not accumulate many liabilities in which they can avoid. For a company, corporate tax is an expense. In most cases, companies usually try to keep the losses as low as possible to increase the profitability levels. The company is therefore relieved off the losses that it accumulates in the normal running of its operations. The only restriction is that the losses can only be offset within the preceding 36 months. The losses can only be offset against profits that arise from the same line of business. That aims at ensuring that a company does not run away from its obligations in the future. In the case of Alphabet plc, the losses made in 2009 were offset in 2010. The losses made in 2012 are supposed to be offset in the profits accumulated in the year 2013. From the projected income of the company for the year 2013, the profits cannot totally offset the loss of 2012. Therefore, the defect should be offset in the profits made in 2014. Question 2 1st January 2013- the company should pay corporate tax for the accounting period that ended 31st march 2012. In the case of Alphabet plc, there will be no tax that will be paid because the company had made a loss in the previous year. 31st January 2013 The following payments should be made 1. The company should make its online returns submission in this final date. Even if Alphabet Plc made a loss, the returns should be made so as to show the loss position of the company. 2. It is also the final date in which the company should make returns on paper form for the taxpayers who do not make online submissions. 3. It is also the due date in which the final payment of the liabilities for the previous year should be made. 4. This is also the due date in which the company should make its 1st payment for the next accounting period. The payment should be the greatest of 20% of the tax liability and 3,000 pounds. In this case, alphabet plc should make a payment of the 1st payment because it is expecting a profit in the next accounting period (Burton 2007 pg 98). 1st February 2013 The following payments apply, 1. Interest cost for the company begins to accumulate on tax that is not paid as on 31st January. Alphabet plc will not get any interest cost because it does not have any tax amount that it has not paid. 2. A fine of 100 pounds is usually imposed in case whereby HMRC had requested a return for the previous year and had not been submitted. The company will also be subjected to an addition fine that is equivalent to 10 pounds for the next 3 months that should start accumulating from the midnight of January 2013. 28th February On this date, the company will be subjected to a 5% surcharge that is usually added up to any tax amounts that may be unpaid. Alphabet plc will not be subjected to the penalty because it does not have any outstanding tax. 31st March The company should make its CTSA return because it is the final day for its payment. The payment should be for the previous year. Alphabet plc should ensure that it has submitted the returns by this date to avoid any penalties that may accrue because of failure to make a submission. 1st April The company should pay its corporation tax rate. The tax rate is equivalent to 21% of profits for big companies and 20% of the profits for companies that are said to be small. Alphabet plc will not have to make any payments because it had made a loss in the previous accounting year. 6th April The HMRC usually issues a notice for companies to complete their returns for the year up to 5th April for the accounting period under consideration. HMRC also issues self-assessment returns. 31st July 2014 The company should make the second payment of tax liability that should be based on 50% of the previous year’s profit. The company will only not make the payment if at all it had already made the submissions and the liability that the company owes turns out to be lower than the actual liability. The company will suffer a 5% penalty if they will have any unpaid tax for the previous year. Alphabet plc should make the payment to avoid any penalties. 30th September The company should file its accounts to the company’s house. That applies only for companies that are privately owned. Alphabet plc is a private company. Therefore, the company should file the accounts to the company house. 1st October 2014 Companies should pay corporation tax that is due from small companies for the previous accounting period. Alphabet plc will not have any tax to pay (Adams and Webley 2001). 5th October 2014 This is the last date that a company should inform the HMRC about any new sources of income. That especially applies for companies that have had a change in business operations. A company should also inform the HMRC about any mergers. Alphabet plc should inform HMRC about the taking over of Spur Company. 31st October This is the final date for a company to make submissions on paper. The HMRC is supposed to calculate the tax position of the companies and then apply the tax. That should be coded against income that accrues in the following accounting period for a company. 1st November The HMRC starts charging a penalty of 100 pound for any late submissions. 30th December Companies should make online returns in this final date. In this case, tax that is below 3,000 pounds can be collected by the use of a notice that can be coded against the company’s income for the preceding year. Alphabet Company should make the online returns to avoid any penalties (Caballé et al 2005 pg 87). Methods of payment The company can make payments of tax by the use of a direct debit. The other method of payment is by the use of an online debit by the use of a bill pay. An online credit payment method can also be used. The bill pay method usually takes a total of 3 days before it reaches HMRC. Therefore, payments should be made 3 days before the deadline to avoid penalties. The other method of payment is by using composite payments by using chaps. The HMRC usually recommend that for every self-assessment, a separate payment should be made is the chaps method is being used. The other method of payment is by the company paying directly to its bank by using bank Giro. The other methods include the use of postdated cheques and using post to pay tax. Question 3 Penalties for late filling include the following; 1. The company will be charged a penalty for not filling even if it does not owe the government any form of tax. 2. If the company does not make returns for the 31st of January and October, the company will be subjected to a penalty equivalent to 100 pounds. The penalty will apply even to companies that do not have any tax liability. 3. If the company is 3 months late, the company will be charged an automatic 100 pounds per pay. The penalty will accumulate up to a maximum of 900 pounds. 4. If the company becomes late by 6 months, it will be subjected to a penalty that should be the greater of 300 pounds and 5% of the tax owed (hmrc.gov.uk). 5. If the company is 12 months late, it will be subjected to a further penalty that should be the greater of 300 pounds and 5% of tax owing. However, there are some exceptional cases in which the company may be subjected to a higher penalty (Aaron et al 2004 pg 45). Penalties for late payment 1. 5% of tax that is not paid after 1 month. 2. An additional 5% for tax that is not paid for another 6 months. 3. An additional 55 for tax not paid for a duration of 12 months. The law subjects penalties to tax defaulters so as to ensure that all people are tax complaint. Taxes should be paid because they are the main income earners for the government. Bibliography Aaron, Henry J. and Slemrod, Joel, (eds.) (2004), The Crisis in Tax Administration, Brookings Institution Press, Washington DC. Adams, Caroline and Webley, Paul (2001), ‘Small business owners’ attitudes on VAT compliance in the UK’, Journal of Economic Psychology, vol. 22(2), pp. 195-216. Burton, Mark (2007), ‘Responsive regulation and the uncertainty of tax law - Time to reconsider the Commissioner’s model of cooperative compliance?’ eJournal of Tax Research, vol. 5(1), pp. 71-104. Caballé, Jordi and Panadés, Judith (2005), ‘Cost uncertainty and taxpayer compliance’, International Tax and Public Finance, vol. 12(3), pp. 239-263 Glassberg, Barry and Smyth, Christina (1995), ‘Tax compliance costs: The problems and the practice’, in C. Sandford (ed.), Taxation Compliance Costs: Measurement and Policy, Fiscal Publications, Bath, pp. 15-70. Tax return deadlines and penalties. Retrieved on 12th march 2014 from http://www.hmrc.gov.uk/sa/deadlines-penalties.htm Read More