'Secret' tax rules threat

Delays in the publication of new tax rules, being secretly circulated by the Inland Revenue, are hampering the efforts of British industry to use up its #7bn advance corporation tax surplus before the tax is scrapped this April.

Sources at top accountancy firms have seen advanced drafts of the ‘shadow’ ACT rules, but say the continuing delay in their official publication is preventing clients from planning properly.

The rules are intended to soften the blow companies will face when they lose the ability to use up ACT surpluses when the tax is abolished.

Although many companies favour the end of ACT because it means their surpluses will not grow any bigger, many are angry that they will effectively suffer a double-tax hit through not being able to use up their existing surpluses.

Under current rules, companies are entitled to offset ACT, which is paid on dividends, against their end-of-year corporation tax liabilities. But complex rules restrict the extent of this practice, and companies therefore build up unused surpluses of ACT.

Companies in cyclical industries such as property are usually among the worst hit by the problem, although many have recently been able to reduce their surpluses as the market has recovered.

With the abolition of ACT now perilously close, tax experts fear they will run out of time for proper tax planning.

Bill Dodwell, an Arthur Andersen tax partner, criticised the Revenue’s approach to circulating the new rules. ‘Our concern is that consultation on something which will cost people money or give them benefits should be done more publicly,’ he said.

Many companies are undertaking tax planning to reduce their surpluses, for example through sale-and-leaseback property transactions, which generate offsettable tax profits.

Nicky Wilson, a partner at international real estate adviser Jones Lang Wootton, said there has been a recent increase in sale-and-leaseback transactions, which could be partly attributed to the end of ACT.

The Revenue hopes to publish the shadow rules early next month.