Chancellor Gordon Brown could receive a £1bn tax boost for his pre-election Budget this spring, if ministers choose to exploit confusion over the tax treatment of international financial reporting standards.
The money, which will accrue if the government does not reform some technical aspects of tax legislation on IFRS, would provide a much-needed boost to Treasury coffers, for what would be the last Budget ahead of an expected election in May. It would also go some way to filling a budgetary black hole that is estimated to be as much as £12bn.
The Inland Revenue has said that it will address issues that arise from IFRS tax legislation.
The legislation unintentionally increases the amount of corporation tax paid by many companies. But with an election due, there are worries that these issues may fall by the wayside.
Derek Jenkins, tax partner at PricewaterhouseCoopers, said that there was a possibility that ministers could delay IFRS tax reform, particularly if they were told this side of an election that holding off would boost the Treasury’s coffers by £1bn.
‘In an election year, you can’t be surprised if a politician does something like this to boost their chances,’ said Jenkins, adding that the issue was so complex it would pass unnoticed by most voters.
Shadow chief secretary to the Treasury, Howard Flight, said that the government was ‘extremely likely’ to use this option to plug gaps in spending plans especially as ‘the areas where Brown’s forecasts were a bit toppy in corporation tax’.
The government has already taken steps to avoid a huge hit to its tax take this year by deferring one off transitional effects of IFRS until at least 2006. Roger Muray, tax partner at Ernst & Young, said ‘this one-year blip could run into billions’.
A Treasury spokeswoman said it would not be basing its corporation tax calculations on IFRS accounts until the impact was more fully understood.
Making Tax Digital will impose significant additional tax compliance costs on small businesses for little or no medium term benefit, tax and small business experts told MPs
MHA MacIntyre Hudson has partnered with cloud accounting software provider Xero ahead of the government’s requirement for digital records
The drive towards a fully digital tax regime is an admirable one, but mandation is simply wrong, according to one of the UK's most senior tax technology practitioners - Paul Aplin
Does Darwin's theory apply to taxation? Colin ponders...