Taxation - Brown to rethink tax change

The Treasury is preparing to compromise over its plans to overhaul the system of paying corporation tax, following a concerted campaign by accountants and industry representatives.

Officials have told Chancellor Brown that a major section of the scheme, which is intended to switch companies from the present system of paying taxes in arrears to a US-style system of quarterly payments, will need to be amended to prevent a revolt among business leaders.

The dispute centres on a proposal that companies base tax payments on projected earnings, and that those same earnings figures will be used to divide companies into three groups – small, medium and large.

Brown is understood to have accepted that tax payments should be calculated based on previous year’s earnings. When the plan was announced in November’s Green Budget, the Inland Revenue estimated companies would face an additional #7bn tax burden during transition to the scheme.

Rosalind Upton, Ernst & Young’s corporation tax partner, said small companies would be badly hit by the original scheme and that uncertainty over how much tax would be paid would be likely to hit levels of investment.

The CBI also stressed the system would be unworkable for companies operating in seasonal industries.