Mutuals converting to companies no longer run the risk of paying tens of millions of pounds in tax on the costs of conversion after a ‘precedent-setting’ decision involving some of the country’s recently converted banks, Accountancy Age reports today.
Finance directors at the Alliance & Leicester and the Halifax this week both indicated that a decision that the costs of conversion should be fully tax deductible could make life easier for future mutuals – whether they are building societies or insurance companies.
Their views were prompted following the Inland Revenue’s decision last week not to appeal against the Special Commissioners ruling .
Roger Boyes, FD at the Halifax which saved £55m of its £170m costs, said the Commissioner’s decision should not be seen as a ‘blank cheque’ but added: ‘It probably does set a precedent providing you can prove to the Revenue your reasons for converting are commercial.’
The argument between the banks and the Inland Revenue revolves around the reasons for the conversion from mutual status.
According to the Revenue’s argument the four building societies, Woolwich, Halifax, Alliance & Leicester and Northern Rock, converted as part of a capital transaction to deliver extra value to owners and members.
However, the building societies successfully countered that conversions had been carried out to enable the organisations to grow ‘commercially’.
Richard Pym, FD at Alliance & Leicester, which saved £15m on £50m conversion costs, said: ‘If other businesses can demonstrate the same circumstances they will benefit from this decision.’
The Woolwich, which declined to talk about the decision, will save £22m on #69m spent on costs while Northern Rock saves £10m from £32m.
Nicholas Jordan, of Clifford Chance, the law firm advising the four banks, said: ‘This is a significant decision and it will no doubt be seized upon by other mutuals, including insurance companies, who find themselves in a similar position.’
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