The government has launched a consultation on reforming the corporate tax system.
Announcing the consultation, Dawn Primarolo, paymaster general, said: “In 1997 the government set out to reform and modernise the corporate tax system and boost the UK's competitiveness in the global business environment.
“The strategy and objectives underpinning these reforms were set out in our consultation document of July 2001. They guided the reforms made in this year's Budget and the proposals discussed in today's document. I would urge businesses and all those with an interest in corporate tax to read and respond to the consultation.”
The new consultation seeks views on three potential areas for further reform. These are the tax treatment of capital assets not covered by earlier reforms; rationalisation of the way in which the schedular system taxes various types of income; and the differences in the tax treatment of trading and investment companies.
The Assocation of British Insurers welcomed the consultation, but cautions that the particular needs of life industry policyholders should be taken fully into account.
Peter Vipond, head of financial regulation and taxation of the ABI, says: “We welcome any proposals which will simplify and reform the UK's corporation tax system, and in particular address the different tax treatments which currently apply to trading and investment companies.
“But the Inland Revenue's proposals to change the taxation of capital assets need to be carefully thought through. If the existing tax system for the life industry – the so-called “income minus expenses” – remains in place, the Revenue's proposals would mean policyholders facing tax on gains in the value of their policy investments, even if those gains were unrealised.”
He adds: “This would clearly be unfair. We are in discussion with the Revenue about how best this can be avoided. One option may be to move the taxation of life funds onto a new basis, and our members will need to explore this and other options in detail with the Revenue as part of the consultation process.”