ACCA Calls For Government Rethink On Dividend Tax

by Jason Gorringe, Tax-News.com, London

10 February 2004

In its pre-Budget submission, the Association of Chartered Certified Accountants (ACCA) has urged UK Chancellor, Gordon Brown to rethink the tax consequences of disincorporation if he decides to go ahead with plans to tax company dividends.

Speaking to the UK media, head of taxation at the Association, Chas Roy-Chowdhury explained that:

"It's tax-free for businesses to incorporate. The Government has been encouraging it with the zero tax rate at £10,000 and by allowing a £300,000 profit limit for the 19% rate. Now the Government is perhaps collecting £1 billion less tax than it should be and it's saying you have to have bona fide business reasons for incorporating. But it is not saying how they can disincorporate without tax costs."

Currently, the only option for companies seeking to disincorporate but continue trading is liquidation, with the assets sold to the business owners. However, this triggers capital gains tax liabilities.

The ACCA taxation chief suggested this week that firms should be able to roll over these liabilities, so that the amount of tax due decreases as they continue trading.

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