TaxPersonal TaxConcern over catch-up fee

Concern over catch-up fee

A Labour MP has joined Tories in expressing concern over Treasury proposals to withdraw the cash accounting basis for professionals.

But a series of questions in the Commons from St Helen’s South MP Jerry Bermingham extracted no more information from ministers about their reaction to comments made by accountants and lawyers during formal consultations over the proposal.

The government is forecast to reap a £200m tax windfall as professionals, including accountants, pay a ‘catch-up charge’ over three years as profits will only be based on money received and paid out.

Partners could end up paying up to £100,000 over the three-year period and ACCA has predicted that many firms could go to the wall as a result.

Financial secretary Dawn Primarolo ignored MPs’ concerns: ‘The final shape of the proposed legislation will not be announced in advance of the Budget,’ she said.

The government sidestepped a formal question in the Commons on reports that the Lord Chancellor Lord Irvine of Lairg has been pressing Chancellor Gordon Brown to back down on the controversial plans.

Sevenoaks Tory MP Michael Fallon echoed ACCA’s concerns that smaller accountancy firms will be hit hardest by the change and described Primarolo’s insistence that the change is designed to restore a level playing field between businesses as ‘pretty disturbing’.

He said: ‘Ministers do not acknowledge the difficulties this is going to cause.’

Fallon said it was likely that if the government proceeds, the Conservatives would seek to move amendments in the Finance Bill Committee ‘because we are concerned at the impact, particularly on young professionals, of having to pay tax on income not yet received’.

The Chartered Institute of Taxation also called for the government to scrap its plan. Nigel Eastaway, chairman of the institute’s technical committee, said the new rules should be targeted at ‘phoenix partnerships’ adopting the cash basis and then disappearing.

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