10 Ways to Prepare for a More Efficient Corporation Tax Return

1. Maintain a rolling group structure chart

Understanding the group structure impacts many areas of the tax computation. Maintaining an up-to-date group structure chart, including dates of acquisitions, disposals and reorganisations, provides a clear and documented record of changes throughout the year.

2. Use a well-designed chart of accounts

Maintaining discipline around the accurate posting of expenses can significantly improve the efficiency and accuracy of the tax compliance process. As part of routine tax compliance work, common add backs such as non-staff entertaining, fines and penalties, donations and gifts need to be identified. Posting these items to separate nominal ledger accounts saves time when analysing expenditure and reduces the risk of errors.

3. Use detailed ledger descriptions

Detailed nominal ledger descriptions can help avoid unnecessary queries later in the compliance process, particularly in relation to legal, professional and consultancy fees.

For example, a description simply stating “legal fees” will almost always generate further questions. In contrast, “legal fees in relation to employment contracts” provides sufficient context and may avoid follow-up queries months later when the tax computation is being prepared.

4. Maintain an accurate fixed asset register

An accurate fixed asset register is essential not only for audit and accounts preparation purposes, but also for corporation tax compliance.

Detailed acquisition records become particularly important when assets are disposed of. Maintaining accurate records, together with reconciliations of profits and losses on disposal, can significantly streamline the preparation of the corporation tax return.

5. Carry out capital allowances reviews in real time

Where a company has undertaken significant capital expenditure, such as a property refurbishment project, there can be considerable benefits in reviewing capital allowances in real time rather than waiting until the year end.

Large capital allowance claims can naturally attract greater HMRC scrutiny. Carrying out a contemporaneous review often improves the quality and robustness of the claim, helping support the position taken in the tax return.

6. Maintain a register of all vehicles

While some information may already sit within the fixed asset register, maintaining a separate vehicle register can be extremely helpful for tax purposes.

Including details such as whether a vehicle is a car or commercial vehicle, together with CO2 emissions data, ensures the relevant information is readily available when preparing the corporation tax computation.

7. Monitor directors’ loan accounts regularly

Directors’ loan accounts should be monitored regularly throughout the year, rather than treated as a year-end exercise.

DLAs present many tax issues such as section 455 tax on overdrawn balances, employment tax issues, withholding taxes, benefit in kind implications and other corporation tax consequences where balances are not managed appropriately.

Regular review of transactions, timely repayments and ensuring that all entries are properly documented can help mitigate unexpected tax liabilities and compliance risks for both the company and the director.

8. Review related party transactions

While SMEs may benefit from the UK transfer pricing exemption, this does not mean related party transactions can be ignored altogether.

There may still be transfer pricing obligations in the corresponding jurisdiction, and certain territories or transactions may fall outside the scope of the exemption. In addition, expenses such as management charges should remain commercially justifiable, even where full transfer pricing documentation is not required.

Transactions involving connected parties can also create complexities under the capital gains regime. Identifying these transactions early in the compliance process can help avoid delays, technical issues and unexpected tax consequences later in the preparation of the corporation tax return.

9. Prepare clear balance sheet reconciliations

Again, this is essential not only for audit and accounts preparation, but also for corporation tax compliance. Clear analysis and reconciliation of creditor balances and provisions can significantly improve the efficiency and accuracy of the corporation tax process.

Balances such as accruals and provisions often require further review during the preparation of the tax computation. Information frequently requested includes details of unpaid pension contributions, payment dates for wages accruals and the methodology used to calculate provisions, amongst other matters.

Where reconciliations are incomplete or unclear, additional queries are usually required, which can delay the compliance process and increase the risk of errors.

Maintaining supporting schedules and explanations throughout the year helps ensure issues are identified early and that the year-end corporation tax process runs more smoothly.

10. Pick up the phone

Sometimes issues are easier to resolve through a conversation rather than a long email chain.

If something feels unclear, overly time-consuming or difficult to explain by email, a quick call can often resolve matters much more efficiently. We are always happy to talk through queries and discuss the information required.