Repayments / reallocations: non automatic reallocations: surrender non COTAX repayment to COTAX
This subject is presented as follows.
Groups of companies can minimise their exposure to late payment interest (LPI) by surrendering potential repayments between group members. Companies usually make the joint notice of surrender to the Technical Caseworker dealing with the affairs of the surrendering company. He or she is responsible for determining the validity of the notice.
The Technical Caseworker dealing with the surrendering company gives effect to the surrender using Function REWD (Direct Reallocation Within COTAX).
When the surrendered amount is one of the following, the Technical Caseworker dealing with the recipient company must make the set off using Function DSET (District Set Off).
- A repayment of income tax, including CIS25 tax.
- A payment of tax credit.
Where the surrendered amount is held on a SAFE record, the Technical Caseworker must complete a SAFE Repayments stencil (SAFE 1) and give it to their SAFE user. They then set the ‘No Repayment’ signal on SAFE if necessary and send the form to the Miscellaneous Charges unit in Shipley to reallocate the amount to COTAX.
In practice, the two Technical Caseworkers are often the same person, but sometimes they are not even in the same office and the Technical Caseworker accepting the notice may not have access to the COTAX record of the recipient company.
In such cases, the Technical Caseworker who accepts the notice must send a memo on the same day to the Technical Caseworker dealing with the recipient company giving full details of the surrender.
Giving effect to the surrender
If you accept that the surrender is valid, use either Function DSET or REWD, or complete the SAFE 1 repayments stencil to make the set off. See COM122010 for more information.
For interest purposes, treat a surrendered refund of income tax, tax credit and so on as CT paid by the recipient company on the normal CT due date for the AP in which the surrendering company paid it.
When you use Function DSET or request a set-off from a SAFE charge to give effect to a surrender, the EDP (Word 41KB) you enter should always be the normal CT due date for the AP.
Interaction with tax-related penalties
The recipient of a Section 963/Reg 9 surrender is to be treated for the purposes of calculating any tax-related penalty only, as having paid the surrendered amount on the date the joint notice is given:
- not the date the surrendering company paid the duty
- nor the normal CT due date for the AP (see S964(3) CTA 2010).
So, there can be a different EDP for penalties purposes from the EDP for tax purposes and COTAX cannot take account of this.
There is no problem when the date on the notice of surrender is no more than 18 months after the end of the AP, which is the normal tax-related penalty point. You have entered the normal CT due date (nine months and one day after the end of the AP) as the EDP. COTAX treats the surrendered amount as a payment of CT on the normal due date.
Provided you make the surrender posting no more than 18 months after the end of the AP, COTAX rightly reduces the tax unpaid (Word 41KB) on which it bases any tax-related penalty.
Notice of surrender given more than 18 months after the AP end
If the companies give notice of surrender after the 18 month point, tax-related penalties must be based on the tax unpaid at the point the tax-related penalty arose, taking no account of the surrender.
You must enter the normal CT due date as the EDP when using Function DSET or requesting a set-off from SAFE to give effect to the surrender. However, COTAX then gives credit for the surrendered amount when it calculates the unpaid tax on which to base the tax-related penalty calculation. That is not right, and you sometimes need to intervene.
Posting the surrendered amount to the recipient’s record using Function DSET does not make COTAX recalculate any tax-related penalty. If the penalty determination is final, you need take no special action providing you do not:
- need to amend the tax liability on the recipient for the AP or
- use Function PPEN (Prepare Penalty Determination) for that AP.
However COTAX recalculates the penalty if you:
- amend the tax liability or
- use Function PPEN to reconsider the penalty determination for the AP for any reason.
It enters the case on your PENR (Penalties Requiring Review List) work list. When you use Function PPEN, the computation of the tax-related penalty COTAX shows you is wrong. You must amend the figure for tax unpaid at the 18 month point to stop COTAX giving credit when calculating the penalty for the surrender received.