Rover deal could trigger rush for tax holidays

Companies will start asking for special treatment from the Inland Revenue if they are in financial difficulty following the leniency shown to struggling UK car company MG Rover.

Link: Treasury faces EU probe on Rover tax

Rover has been allowed to take a national insurance and income tax holiday to help avoid insolvency, it emerged last week.

The company is currently finalising a £200m rescue deal with Shanghai Automotive Industry Corporation, China?s largest carmaker.

But experts have suggested that the tax deal had more to do with protecting 6,000 jobs at Rover in marginal constituencies before the expected April election.

Mike Warburton, senior tax partner at Grant Thornton, said that many small businesses would be aggrieved to learn of Rover’s special treatment.

‘It is the old adage,’ he said. ‘If I owe a bank £1,000, it’s my problem. But if I owe them £100m, it’s their problem.’ Rover’s size, he said, meant the company had the clout to broker a deal not available to others.

‘The vast majority of my clients do not get this treatment,’ Warburton pointed out. ‘In fact, some of the most difficult people to deal with when in financial difficulties are the government agencies.’

Rover is paying a fee for its special treatment, which has been described as interest on the money deferred. This is to avoid the tax holiday being regarded as state aid, which is illegal under EU law.

‘But we would expect them to pay interest on that money anyway,’ Warburton said.

The total tax deferred is thought to be around £40m, classified as a combination of income tax, national insurance and VAT.

The Inland Revenue said it sometimes let financially stretched companies defer income tax or national insurance payments. ‘We examine each case on its merits,’ a Revenue spokesperson said. ‘But the money would have to be paid off eventually.’

Warburton insisted, however, that the government had now set a precedent with Rover. ‘People will now say to them -ð why can’t we do this?’