Budget tax hikes to hit Big Four HQ moves
Changes to corporation tax and allowances made in the Budget could hit professional services firms, it has emerged
The cuts to capital allowances will send relocation costs for KPMG and
PricewaterhouseCoopers soaring as the firms prepare to move into new buildings.
Because KPMG and PwC are run as partnerships rather than companies, partners’
earnings are taxed as personal income.
They will therefore not benefit from the chancellor’s 2p cut in corporation
tax, which would have balanced out the reductions in allowances on integral
fixtures from 25% to 10%, and on plant and machinery from 25% to 20%.
KPMG, which recently took out a £260m lease on a 15-floor building in
London’s Canary Wharf, and PwC, which is thought to be homing in on a second
major office near London Bridge, will now incur much higher costs for procuring
plant and machinery. These costs will include lift shafts, air conditioning and
integral fittings such as furniture and computers, as the capital allowances on
these and other items are no longer as generous.
‘If you are a large company, the suffering of the allowance cuts is softened
by the cut in corporation tax,’ said Ernst & Young tax partner Patrick
Stevens. ‘If you are a professional services firm operating as a partnership,
you just suffer.’
The extra tax bill is unlikely to scupper the plans, insiders insisted.
The eventual additional cost burden that will have to be borne by KPMG, PwC
and other professional services partnerships planning an office move is still
unclear as there are ways in which firms can mitigate the allowance cuts.
‘The additional cost depends on how much equipment was purchased before the
Budget changes,’ one tax adviser said. ‘And if a landlord is a pension fund or
business, then the investment could be bundled up as rent.’
The changes made in the Budget come at a time of widespread
property consolidation across the accounting industry. Firms are opting to
streamline diverse offices inherited under earlier mergers and to manage the
huge growth in staff numbers over the past three years.
E&Y has moved to a single office on the Thames, while Deloitte is
bringing together operations at its Stonecutter Court offices.