Prior the Finance Act 2021, there was a waiver/ reduction in rate of minimum tax (from 0.5% to 0.25% of gross turnover), necessitated by the Covid 19, for incorporated companies’ income tax returns falling due within tax years 1 Jan 2020 to 31 Dec 2021.
* Please note that ‘tax year’ is different from ‘accounting year’. Accounting year is always the preceding year to the tax year, meaning that the first of such tax returns falling due within tax year 2020, could be based on accounting year ending within 2019.
The Finance Act 2021 has now clarified that only TWO (2) companies’ income tax returns falling due within those years (1 Jan 2019 to 31 Dec 2021, either by accounting year or by tax year consideration) can / could qualify for the waiver or reduction in minimum tax rate to 0.25%, where minimum tax was applicable. The taxpayer is to choose any 2 income tax returns within those 3 years.
This may imply that some companies that had taken advantage of this reduction in minimum tax for more than 2 accounting years ending within those years, will have to pay the minimum tax shortfall accrued in the extra year(s).
The Finance Act 2021, also clarifies that any company that did or does not file any of the TWO returns on or before the stipulated due dates for filing, will have to pay a late returns penalty that is equivalent to the 0.25% minimum tax paid, for each such tax return that was filed late.
For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.