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06 Jul 2009
The Tory party is reportedly coming under pressure over its policy to reduce the tax deductibility of interest charged on corporate debt.
The party has signalled it wants to cut the tax relief as a way of funding a reduction in the headline rate of corporation tax.
However, The Financial Times reports mounting opposition. Jeegar Kakkad, of the EEF Manufacturing group, is reported as saying: ‘Interest deductibility is potentially too big a price to finance a reduction in headline rate.’
Chris Sanger, partner at Ernst & Young, is insisting the relief helped build businesses in the UK. ‘Any significant change risks making the UK far less attractive,’ he told the paper.
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Farce
Interest is a genuine business expense so I fail to see any good principle for why it should not be deductible for tax. Furthermore, surely if interest expense is not deductible it follows that interest income cannot be chargeable?
Granted there is scant info, perhaps he intends only to disallow interest in certain situations - discouraging using loans to fund the purchase of existing businesses would be welcome but I can only assume he intends a blanket ban as otherwise it would be destroyed by avoidance.
All this will do is hurt the entrepreneur more than the already-rich, and the tax cost will simply be passed on. It won't do the banks any favours either.
(By the way, Jeegar Kakkad says "much to my chagrin, the quote isn't quite the tone and message I was trying to convey" http://www.eef.org.uk/blog/author/jkakkad.aspx )
Posted by: Dave, 06 Jul 2009 | 00:00
Cost of Capital
That will upset the model!
If we can't understand it lets get rid of it !
mmm now why does that ring a bell?
Posted by: Spike, 08 Jul 2009 | 00:00