Orange wins tax case
The special commissioners have found against the Revenue in a tax on interest ruling.
Mobile telecommunications company Orange scored a significant victoryinterest ruling. over the Inland Revenue last week when a tribunal ruled that interest paid on a savings account could be rolled up and taxed several years after it had accrued.
The decision, which allows Orange to delay paying tax on interest earned between 1990 and 1992 until 1993, could see banks offering new savings products. Orange will save hundreds of thousands of pounds of interest income, accrued before it started trading in 1993.
The Revenue argued that tax should be paid on the interest in each year as it was accrued. Last year, the government closed this loophole when it brought in company debt regulations forcing companies to pay tax on interest income each year. But the legislation was not retrospective.
A Revenue spokesman said the agency would appeal against the decision of the special commissioners because it was concerned that other companies would also attempt to cut the tax liability on interest income before the 1996 rules applied.
Tax experts said the knock-on effect of the ruling will be to sanction individual taxpayers increasing their income from savings accounts by rolling up the interest from one year into the next.
Chris Fitzgibbon, a tax expert at Deloitte & Touche, said: ‘The decision will allow banks to develop an interesting product, which is an on-shore roll-up savings account allowing taxpayers to enjoy compound yield on their savings and to defer their tax liability.’
Mike Warburton, head of tax at Grant Thornton, said it was already possible for taxpayers to roll up interest income, but was concerned that a successful appeal by the Revenue would end the practice altogether. ‘If the Revenue is appealing in order to change the rules for individuals, then that is wrong. If it wants to change the rules, it should be done through legislation.’