UK corporate taxpayers have welcomed a proposal to allow them find out the tax treatment of a transaction before the deal goes through. The Varney Review, a study of the links between the country's tax authorities and large companies recommended the introduction of a new system of binding advance rulings. HM Revenue and Customs (HMRC) is yet to specify the size of deal that will qualify.
Another key proposal includes the adoption of a risk-based approach to HMRC inquiries. The change is intended to reassure companies that only important issues will be looked at and that they will be dealt with more quickly.
The tax authorities will also be required to take the business perspective into account in everything it does, thereby giving earlier clarity and reducing complexity and administrative burdens for business.
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David Varney: Government will implement review in full |
Gordon Brown, the UK's Chancellor of the Exchequer, has said he will implement in full the recommendations of the study which he inaugurated on the day of the 2006 Budget in March. David Varney, who subsequently resigned as HMRC's executive chairman, led the review, which was published in November.
A Large Business Advisory Board, consisting of Treasury and business representatives, will ensure the proposals are implemented on schedule by the end of 2007. An implementation plan will be produced before the 2007 Budget.
The review took place during a period of increasing dissatisfaction among corporations regarding the UK tax system. The government's attack on tax avoidance led to a stricter disclosure regime, a move tax directors criticised for a lack of sufficient consultation.
Business representatives have praised the report's conclusions. "What is promised now is a more transparent, open and predictable approach, and one where problems will be dealt with in a timely manner," said Richard Lambert, director-general of the Confederation of British Industry (CBI). "Companies will be able to find out where they will stand before committing substantial investment to the UK," said Richard Baron, head of taxation at the Institute of Directors (IoD), welcoming the proposal on advance rulings.
"The creation of a Large Business Advisory Board will be a helpful addition to the policy debate and should ensure that the harsh realities faced by businesses in complying with our tax system are tackled and addressed," said Chris Sanger, head of tax policy at Ernst & Young.
"Proposals that low risk businesses will be subject to fewer HMRC inquiries than high risk ones, is a welcome move, reducing unnecessary burdens on businesses," said Paul Eagland, head of tax at BDO Stoy Hayward
At the same time, Baron looked forward to a less complex system. "It would be even better to have a simpler tax system, so that companies were not uncertain about the effects of tax rules in the first place," he said. And Lambert highlighted the tax burden: "Administration is just one element of the tax system, to ensure and enhance the UK's international competitiveness, the government must also look at lowering the overall tax burden, " he said. CS
