Finance Act adds new burden to companies' reporting requirements

Following Royal Assent of the Finance Act last week, companies are facing a new penalty regime should they fail to notify the Inland Revenue when they commence to trade, warn business and financial advisers Grant Thornton. This could adversely affect the cash flow of new companies if they inadvertently fail to notify.

Clare Hartnell, tax partner at Grant Thornton, said, "Although the self-employed have had to meet these requirements for over three years, now for the first time, companies must provide notification when they commence to trade under this year's Finance Act. Failure to do will result in a hefty penalty."

Under the new rules, a company must provide notification within three months of it becoming liable to UK corporation tax. This applies to large and small businesses. For example, overseas companies which become resident in the UK, whereby the central management and control is relocated to the UK will have a notification requirement. In addition, this applies when a new company acquires a source of income, investment or trading. For the unwary, companies that have been dormant for a period and recommence to trade or make investments will also be required to notify.

For companies failing to comply within the specified time limit, a penalty of £300 will be imposed, and an additional penalty of £60 per day if the failure continues. For any new business, this would be a significant hit on its cash flow. The new rules also set out a specific list of details that must be included in the company's notification including, name and nature of the trade, address of registered office, plus full names and addresses of company directors.

This requirement is on top of the obligation to notify the Inland Revenue about directors' and employees' company share transactions. Companies have to disclose details of company shares and unapproved share options issued to their directors and employees, and they should so by completing Form 42.

Hartnell concluded, "This is an additional reporting burden on business. There are certain cases where a company may be spared from paying the penalty, providing it has a 'reasonable excuse', for example, an unforeseen disruption to normal postal services. However, being unaware of the new rules is not one of them and will not be deemed to be a valid excuse. We are advising companies to double check their reporting obligations."