Plans to crackdown on companies disguising interest they receive as other forms of income could have dire consequences for preference shares and controlled foreign companies, advisers have warned.

Companies often plan around taxable interest, making it capital gains or alternatively as exempt from corporationta tax. In December, HM Revenue & Customs introduced a ‘principles-based’ approach which has sparked concern from advisers.

‘Defining the difference between interest income and equity income is very difficult. The new approach needs to be tightened up to avoid such uncertainty,’ said Bill Dodwell, head of tax policy at Deloitte.

In a briefing note, PricewaterhouseCoopers said the approach would place too much reliance on clearances from HMRC, rather than the ‘letter of the law’.

Read more at taxnews.pwc.com