TaxPersonal TaxCurrency tax fear hits business.

Currency tax fear hits business.

Exporters and multinationals are this week bracing themselves for changes to foreign currency exchange rules in Gordon Brown's Budget that could cost them millions in lost tax relief.

Accountancy Age has learned the Inland Revenue warned at a confidential meeting in January that the chancellor could use the Budget to scrap legislation that allows relief on foreign exchange losses in favour of using a new test for deciding whether currency transactions are eligible for tax deductions.

Experts fear the test, the notorious paragraph 13 of the loans relationship rules, is so loosely drafted it could be interpreted harshly by a Revenue seeking to impose it as an anti-avoidance measure. As a result, huge uncertainty remains over how the test could be applied.

PricewaterhouseCoopers tax partner Derek Jenkins said: ‘If the tax relief measures are abolished, UK companies will be left at a tax disadvantage. They will have to pay tax on exchange gains but get no relief on losses.’

If the changes go ahead they will put further pressure on exporters already hit by the strong pound, and could consequently foster further support for the euro.

Technically the chancellor is proposing to integrate foreign exchange legislation with the loans relationship legislation which uses paragraph 13. Consultation has been underway for some time but the January meeting was the first indication of the direction of Treasury thinking.

The paragraph 13 test examines whether a transaction is an ‘unallowable purpose’ with regard to tax relief by asking if it has been made for tax avoidance reasons. Anti-avoidance measures exist in the current foreign exchange rules but the paragraph 13 test is could be much tighter.

Alison Christian, of KPMG, said: ‘Our view is that extending the unallowable purposes provisions would create further uncertainty for taxpayers.’

– Win £100 of theatre tokens in our Budget predictions competition. Turn to TS on back page.

– Budget predictions of the major firms, page 4

– For more Budget news, see page 9.

Related Articles

HMRC appeal rejected in Tottenham Hotspur case

Administration HMRC appeal rejected in Tottenham Hotspur case

2w Emma Smith, Managing Editor
HMRC urged to clarify impact of income allowances on Self-Assessments

Personal Tax HMRC urged to clarify impact of income allowances on Self-Assessments

2m Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

2m Emma Rawson, ATT Technical Officer
Wealthy individuals could circumvent top tax rate rises

Personal Tax Wealthy individuals could circumvent top tax rate rises

4m Alia Shoaib, Reporter
Italy grants first successful non-dom status application to former UK non-dom

Personal Tax Italy grants first successful non-dom status application to former UK non-dom

4m Emma Smith, Managing Editor
Industry reaction: Taylor Review does not go far enough in addressing tax issues

Legal Industry reaction: Taylor Review does not go far enough in addressing tax issues

5m Alia Shoaib, Reporter
Does the Taylor Review sufficiently address the gig economy?

Corporate Tax Does the Taylor Review sufficiently address the gig economy?

5m Alia Shoaib, Reporter
HMRC tax evasion assistance requests double in five years

Corporate Tax HMRC tax evasion assistance requests double in five years

5m Emma Smith, Managing Editor