Taxation – Business attacks plans

Companies have bombarded the Inland Revenue with complaints about Treasury proposals to reform the corporation tax system because they fear the scheme is unworkable.

Chancellor Gordon Brown scrapped the annual payment and advance corporation tax in favour of a US-style system of quarterly payments. The move will affect about 55,000 large and medium-sized companies that pay a total of #30bn every year in corporation tax.

Companies and tax experts have complained to the Inland Revenue, which is collecting responses to the proposals, that the decision to use a projection of current and future profits as the basis for calculating the tax will prove difficult, if not unworkable, to implement.

The Institute of Directors and London Chambers of Commerce said it would be very difficult in practice for companies to estimate profits.

Russell Chaplin, head of the Chambers’ tax committee, said: ‘It’s unhelpful to pay based on estimated profits simply because the administrative effort involved will be enormous.’

He added calculations will be complicated by the government’s decision to categorise companies as large, medium or small. ‘Companies will be placed in a difficult position when they begin to cross one of the arbitrary size thresholds.’

Chaplin said he wanted to see the calculation based on the previous year’s profits. ‘We will be lobbying hard for this change,’ he said.

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