Bonus provisions and incorrect returns

Bonus provisions and incorrect returns

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For corporation tax purposes, if the accounts include a provision for remuneration but the amount is not paid by nine months after the end of the accounting period, then the provision is disallowable. The effect of S43(5) FA 1989 is that if the company sends in its CT return before the remuneration in question is paid it must add the provision back, and then send in an amended return if the remuneration is in fact paid before the deadline. S37(3) ITTIOA 2005 applies the same rule to unincorporated businesses.

For CT, failure to follow these rules will result in an incorrect return for which HMRC can apply a penalty under para 20 Sch 18 FA 1998. Penalties for unincorporated business can be charged under S95 or S95A TMA 1970. The maximum penalty is the difference between the tax as shown in the incorrect return (i.e. a return taking a deduction for remuneration that is unpaid at the time it is submitted) and the correct version. The adviser also appears to be exposed to a £3,000 penalty under S99 TMA.

Thus it seems to me that if the accounts include a provision for £100,000 in remuneration, and if the return is sent in say four months after the year end without any add-back, but the remuneration is paid say six months after the year end, then the return is technically incorrect and a penalty (say £20,000 for a company liable at 20%) can be charged. It would be difficult to argue that the incorrect return was anything other than negligent.

So much for the background. My question is, has anybody seen such a penalty being raised in practice? Does HMRC charge penalties for a "technical infringement"?
Adrian

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By User deleted
20th Sep 2007 12:08

No, never seen this in practice.
I woudl think that this type of "technical infringement" amounts to negligence!

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