For many groups year end is fast approaching. As ever, the dynamic UK tax environment presents opportunities and challenges, together with ongoing compliance obligations that must be followed.
In the current financial climate it is important that groups make the most of the opportunities presented whilst seeking to meet their compliance obligations in as efficient a manner as possible.
With this in mind Christine Hewson, tax partner at KPMG in the UK, outlines 5 key tax issues that all groups should have considered prior to year end.
If you haven’t considered these issues yet, it is not too late to take appropriate action – but act quickly as the year end is rapidly approaching.
1) Group finance companies – pay 5.75 percent rather than 23 percent tax on interest income
As part of the ongoing Controlled Foreign Companies (“CFC”) reform the government have announced a relaxation in the UK tax regime for offshore group finance companies.
With appropriate structuring this should result in future UK corporation tax at 5.75% on the profits of these companies. Another attractive feature of the finance company opportunity is that as it is a regime introduced by HMRC it should have no impact on a group’s HMRC risk rating.
2) Foreign branch exemption – take overseas branches out of the UK tax net
Earlier this year, in the Finance Act, the government introduced an exemption regime for foreign branches of UK companies. The impact of the regime is that where a company has foreign branches, the profits made by these branches will not be taxable in the UK, with the corollary being that losses made by the branches will not be deductible in the UK.
If a company elects into the regime, it will take effect from the start of the company’s next accounting period. Groups should therefore be taking steps now to assess whether the new regime presents an opportunity for cash tax savings.
3) iXBRL – mandatory online tax return filing
For accounting periods ending after 31 March 2010 it is compulsory for all organisations, regardless of size or ownership status, who file corporate tax returns with HMRC to file the tax return, the tax computation and the statutory accounts online in electronic iXBRL format. Sorting out the technology and systems to achieve this is can place a significant burden on group in terms of staff resource.
Whilst tax software vendors have adopted their applications to produce tax computations and returns in the iXBRL format, the conversion of statutory accounts, which are typically produced outside of the groups accounting package is a separate issue that requires attention.
4) VAT cash flow management and release
Cash remains a top priority for organisations, with 86% rating it as one of their business’ top five strategic priorities in a recent KPMG survey.
VAT is likely to be one of the largest and most undermanaged cash flows in the business and there will likely be untapped ‘quick win’ opportunities and more ‘strategic’ opportunities where cash can be released.
Businesses should ask themselves if they have visibility over, and can actively manage their VAT cash flow position across the year, and then how confident they are that they use all the contemporary methodologies available to them to inject cash into the business.
5) Reward planning – getting the most out of pay packages
Ensuring that your salary and benefits budget delivers the best value for money has never been more important. Recent increases to National Insurance Contribution (“NIC”) rates, likely increases in costs for Agency staff and the impending introduction of auto enrolment for pensions allied to the current economic situations suggests that pressure on the “wage bill” is unlikely to go away.
For further information please contact:
Margot Cowhig, KPMG Corporate Communications
Tel: 0207 694 4246 Mobile: 07920 274856: firstname.lastname@example.org
KPMG Press Office: 0207 694 8773
About KPMG LLP
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.