TaxPersonal TaxTax credit rethink

Tax credit rethink

Chartered accountant MP wins review of Budget rules on dividend tax credits, reports Kathy Greene.

Tax experts have accused the Inland Revenue and the Treasury of deliberately attempting to restrict the amount of advanced corporation tax that companies can reclaim.

In a separate attack on the finance bill, chartered accountant MP and Accountancy Age columnist Nick Gibb claimed partial victory in his campaign against government plans to end the repayment of tax credits on dividends to non-tax paying individuals, after the Treasury said it would review the plan.

But Treasury officials continued to deny claims that new rules published earlier this week contain tougher measures restricting ACT payouts than the present system, and companies might find them too difficult to use.

The complexity of the rules will cost companies millions of pounds in unclaimed surplus ACT.

‘It will be too onerous for companies to attempt to comply with new rules. They will have to do a great deal of work to calculate if they can reclaim the surplus,’ said Caroline Austin, senior tax manager at KPMG.

‘The Revenue is determined not to hand back surplus ACT: otherwise it would come up with a simpler way to do so,’ said John Whiting, head of tax at Price Waterhouse.

The new tax system is needed because UK companies have amassed up to #7bn of surplus ACT which they will want to reclaim after ACT is abolished in 1999 as part of the overhaul of corporation tax.

Under the new rules, companies will be required to pay a ‘shadow’ tax on dividends, leaving less space to absorb real ACT.

‘The rules are no more difficult than the present ones. Companies will simply mirror current ACT expectations,’ said a Revenue spokesman.

Gibb said he had pressured the government into a review during the committee stage of the finance bill.

In last year’s Budget, chancellor Gordon Brown introduced measures which pre-vented pension funds and non-taxpaying individuals from reclaiming tax credit attached to dividends paid by UK companies to shareholders.

‘This is a major climbdown by the government and a victory for pensioners.

It will mean #75 less tax for pensioners on low incomes,’ he said.

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