BUSINESS life: Tax shake-up sparks call to get figures right.

COMPANIES with taxable profits of pounds 1.5million or more for two consecutive years will soon find out that cash flow is king - but in favour of the Inland Revenue, rather than their own coffers, says a Coventry tax specialist.

Rules relating to the payment of tax by instalments, which were brought in under the Corporate Tax Self Assessment (CTSA) regime, will apply to 100 per cent of a company's taxable profits for accounting periods ending on or after 1 July 2002 and mean that payments are made during the tax year, rather than after its end.

John Hodgson, tax partner, at Grant Thornton in Coventry, said: "The Revenue obviously saw the boost to its cash flow resulting from personal tax self-assessment and when CTSA was brought in, a similar benefit for corporation tax was intended.

"To make the blow a little softer, the new rules were phased in following their introduction in July 1999, whereby in Year 1, 60 per cent of taxable profits were paid in instalments. In Year 2, 72 per cent of profits were affected and Year 3, 88 per cent. We are now at the stage when 100 per cent will be payable in this way."

Businesses with seasonal cash flows will be particularly hard-hit and need to make provision for the four regularly payments by planning ahead.

Mr Hodgson said: "As ever, accurate record keeping is essential so that companies can justify the payments made on account, and it would certainly add insult to injury to pay more tax than necessary, so there's an added incentive to get the figures right. Plus, good quality management accounting systems will ensure that directors are in possession of up to date information regarding the company's cash position.

"Where groups are concerned, the most tax efficient practices should be employed and it is also worth reviewing capital expenditure, for example on plant and equipment, to mitigate taxable profits."

As with personal tax self-assessment, interest is charged on late paid tax and where a company deliberately fails to pay an instalment, a penalty of up to twice the amount of interest due is levied.