Exit ACT needs to be studied
Business welcomes the government's proposed abolition of ACT but wants more discussions to resolve concerns.Jon Bunn.
Government plans to abolish advanced corporation tax must be subjectts more discussions to resolve concerns.Jon Bunn. to wide and thorough consultation, tax experts have demanded.
The leaked proposals, which would dramatically simplify UK corporate taxation if implemented, won wide support from the tax profession and business community. But major concerns exist that the measures will be pushed through without further discussion, even though full details of the government’s taxation plans are expected to be released in next month’s ‘consultative’ Green Budget.
Christopher Pearce, finance director of Rentokil and chairman of the FD 100 group, said: ‘The Treasury has shown it is responsive to major companies’ concerns. We might be able to achieve something with this proposal.’
Abolishing ACT, which follows the chancellor’s decision to scrap tax credits for pension funds in July’s Budget, will benefit companies carrying large ACT surpluses – unable to set them against corporation tax due to low UK profits.
The system, designed to maintain the Treasury’s cashflow when it paid tax credits to shareholders, is further complicated by foreign income dividends (FIDs), due to be phased out in 1999. Companies are expected to be asked to pay corporation tax quarterly to maintain Treasury cashflow.
Anita Monteith, chairman of the English ICA’s tax faculty, claimed the surprise announcement had caused ‘considerable disquiet and uncertainty’ in some sectors of industry. ‘It is astonishing that there has been no consultation process. Tax cashflow planning will be in confusion until the legislation is available, and that is not good news for business,’ she said.
Gay Sellars, international tax partner with Ernst & Young, added that a consultation period is vital. She explained that scrapping the ACT system will impact on the UK’s tax treaties with other countries, notably the US.
Sellars warned: ‘If ACT is dropped the US will be entitled to increase the withholding tax on any dividends paid from the US. UK companies with US subsidiaries may incur an additional 10% tax.’
David Allvey, FD of BAT, added: ‘We accept we will have to pay quarterly, but that shouldn’t pose a problem to companies that pay dividends three or four times a year. But the proposals, which will add to administration, are not good for smaller companies. They must be exempted,’ he said.
