Budget 2007: Corporate tax predictions

Corporate tax advisers are predicting that, from a business point of view,
Wednesday’s Budget will be dominated by updates on HM Revenue & Custom’s
plans to improve its relationship with companies.

Rumours have been circulating that chancellor Gordon Brown may use what is
set to be his last Budget to cut the corporation tax rate in response to Tory
plans to do so.

Most experts, however, believe that this is unlikely.

‘The best we can hope for is a programme of reduction over the course of the
next five years but we are far more likely to see no action at all,’ said Chris
Sanger,
Ernst
& Young’s head of tax policy.

Instead updates on consultations and HMRC initiatives are set to be the main
issues mentioned by Brown.

‘The Review of Links with Large Business, launched in December, attracted a
favourable reception from business. HMRC is expected to publish a framework of
risk, setting out the methodology and approach to ranking large groups of
companies according to perceived tax risk,’ Bill Dodwell, head of tax policy at
Deloitte
, said.

Grant Thornton’s head of international tax, Joy Svasti-Salee, said news on
the proposed consultations on controlled foreign companies, interest relief and
franked investment income was also expected following various ECJ decisions.

‘Wider consultation on the future of the UK’s international tax system was
promised in last year’s pre-Budget report. There will inevitably be further
change throughout the year as cases brought by taxpayers claiming the UK is
discriminating against them are heard by the ECJ,’ Svasti-Salee said.

Adam Bainbridge, head of corporate tax at KPMG , said ‘green taxes’ for
business were likely to feature strongly in the Budget.

‘Now that we have the draft climate change bill with its emissions targets,
there could well be moves around “green” taxes designed to encourage more
environmentally friendly behaviour,’ Bainbridge said.

Bainbridge also predicted a string of anti-avoidance measures, which would be
introduced in response to disclosures made under the avoidance disclosure
regime.

John Whiting, tax partner at PricewaterhouseCoopers , said new legislation on
managed service companies was a certainty on the anti-avoidance front.

‘Avoidance around managed service companies is substantial and previous
measures in this area have been unsuccessful,’ Whiting said.

Further reading:

Tories pledge to cut corporation tax

Bingo seeks VAT relief to clear smoke

HMRC beats new form of VAT fraud