The House of Commons has just voted through a statutory instrument that will cost British industry some #8.9bn over the next four years.
The Corporation Tax (Instalment Payments) Regulations 1998 was passed on 1 March 1999 by 289 votes to 130. It introduces the new quarterly payments for corporation tax necessitated by the abolition of ACT.
This is a massive but low-profile tax rise which, when combined with the #5.2bn windfall tax, the #5bn-a-year tax on pension funds and the #15bn regulatory burden on business, brings the total stealth taxes on business to some #40bn. These are staggering sums of money to take from British business – money which could otherwise have been spent on investment and job creation.
The new corporation tax regime will apply to all 20,000 of Britain’s largest companies, which will have to pay their tax bills in four quarterly instalments, beginning after the sixth month of an accounting period.
This means companies will have to estimate taxable profits for the full year ahead and base payments on those forecasts.
No company can make accurate predictions about sales levels, changes in taste or fashion, popularity of a competitor’s products, state of the economy or interest rate levels. And yet, they will be hit with an interest charge at 2% over base rate for any underpayments of tax. Penalties equal to 200% of such interest will also be imposed if the underpayment arose as a result of ‘reckless’ calculations. But there is no indication of what is meant by ‘reckless’ and how much effort a company is expected to make in its profits estimate to avoid the charge.
We now have a hugely burdensome corporation tax system; not as a result of carefully constructed and well-motivated reform, but as a remedy to the chaos created by the government’s first Budget, when it abolished repayment of dividend tax credits to pension funds. That led to the abolition of foreign income dividends which, following protests, then led to the abolition of ACT and consequently – to plug the cash flow gap this would cause – to the introduction of quarterly payments.
It is a shambles and British industry will pay the price.
Nick Gibb is Conservative MP for Bognor Regis.
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