Revenue slated over loophole

The Inland Revenue was this week accused of ‘sloppy drafting’ by Ernst & Young for taking a year to close a loophole.

Until last month’s late amendment to the 1997 Finance Act (2), multinational companies with a small to medium-sized UK subsidiary could receive 50% first-year capital tax allowances for expenditure on plant and machinery.

Last month, chancellor Gordon Brown announced a new clause to the finance bill on the back of changes to the capital allowance system in Northern Ireland.

This changes the definition of SMEs, disqualifying companies with a world-wide presence from enjoying the higher allowance.

Patrick Stevens, a tax partner at E&Y, said the government had been ‘sneaky’.

‘Under the old rules a major bank could set up a small UK office and still qualify for the extra allowance. Although we support the change it’s another example of the law’s sloppy drafting.’

A Revenue spokesman denied Stevens’ claims. ‘We were always aware of the anomaly for international groups but decided to keep it for a year.

Without it, companies would have paid more in compliance costs and saved less in tax savings,’ he said.

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