Corporation tax will soar to £50bn under Brown

Corporation tax will reach £50bn under tax-raising measures announced in the
pre-Budget report. The landmark will be crossed in 2007/08, highlighting the
huge increases in tax over the past few years as businesses bear the brunt of
the chancellor’s spending.

The corporation tax bill for 2004/05 was £34.1bn. The government announced a
raft of new tax hits to business in the PBR, landing the oil industry with an
additional annual £2bn tax charge and pledging to raise a further £750m in
anti-avoidance measures. The changes were the largest increases in taxation
announced on a single day since national insurance was raised in 2002.

Chris Sanger, tax partner at Ernst & Young said: ‘We have got a
fundamental concern that the UK is no longer as competitive on the international
stage. The anti-avoidance moves are forcing the effective rate of tax up and
up.’

The oil industry reacted with dismay to the chancellor’s decision to increase
rate of supplementary tax by 10%. Malcolm Webb, chief executive of the UK
Offshore Operators Association, said: ‘The government has failed to grasp the
vulnerability of the industry’s future in the UK.’

Simultaneously the government announced a range of anti-avoidance measures,
including raising £300m from preventing the purchase of capital losses. However,
tax partner at Deloitte, Bill Dodwell, said property companies, which utilise
capital loss purchases principally, will be able to become REITS (real estate
investment trusts) and avoid CGT, meaning the projected £300m revenues are
unlikely to materialise.

The government is also pledging to re-open the issue of filters, which
explain what must be disclosed. If the range is extended, advisers will have to
reveal far more of the tax planning they are involved in.