Experts blast group VAT curbs

Tax managers at leading financial and multinational companies last week savaged a Customs & Excise proposal to restrict VAT grouping to fully taxable companies.

By stopping companies from recovering VAT on transactions between subsidiaries within the same group, Customs estimated it would be able to recoup an extra #400m.

The response from 90 clients at two Ernst & Young seminars held in London last Friday was highly critical, said the firm’s national head of VAT Peter Jenkins. ‘The message from clients is that this is an extremely unworkable proposal,’ he said. ‘It has major implications for competitiveness in the City and for UK plc as a whole.’

Several tax managers commented that the Customs document appeared to prejudge the issue and were concerned that the #400m figure was ‘plucked from the air’, said Jenkins.

‘The real revenue cost will run into billions,’ he said. ‘Restructuring would be extremely expensive at a time when IT specialists can’t be spared because of the year 2000 problem and the euro.’

Theo Millis, vice president of taxation for American Express, said Customs was entitled to stop companies abusing grouping arrangements. ‘Customs has plenty of weapons to deal with that now,’ he said. ‘Withdrawal seems to be an excessive measure which will harm those who have a genuine case for relief.’

Insurance companies were particularly opposed, commented Prudential’s deputy group tax manager John McCullough. ‘In the insurance sector, section 16 of the Insurance Companies Act stipulates that they can only do insurance business. So activities other companies can carry on in an individual entity, we have to do separately.’

A Customs spokesman said: ‘The consultation is genuine. We haven’t made up our minds yet.

The actual document sets out a firm proposal, but we need more information from trade about how workable it is and where the balance should be struck.’

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