Ernst & Young Urges UK Government Not To Rush Corporate Tax Reform

by Robert Lee, Tax-News.com, London

12 November 2002

International accounting and consultancy firm, Ernst & Young warned this week that the UK government must take a cautious approach to reforming the country's corporate tax regime, especially in terms of the taxation of capital gains.

In a consultation document released over the summer, the Inland Revenue announced plans to introduce changes to the 200 year-old schedular system which would mean that capital gains would be taxed on an income basis, and capital allowances replaced by tax relief for depreciation.

However, speaking on Friday, national head of tax at E&Y, Aidan O'Carroll warned that the government needs to think again in three areas.

'First, the timing has to be right. Corporation tax has been in one ferment or another ever since the Government was first elected. It's because we support reform that we're saying there should be an absolutely robust consultative process and a realistic timetable,' Mr O'Carroll observed.

He also expressed concern that: 'their proposal for taxing all capital assets within an income regime...depends on using international accounting standards, which aren't designed for tax and which haven't been finalised. There is too much uncertainty here for quick progress.'

Commenting that it appears that the Treasury's cash-flow concerns are driving the reform of the system, which should not be the case, the E&Y national tax chief concluded that: 'A reform is necessary and long overdue, and everyone has got to march together on this. If that means it takes five years rather than two, so be it.'

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