Advance corporation tax

Advance corporation tax

Advance corporation tax (ACT) was the scheme under which companies made an advance payment of corporation tax when they distributed dividend payments to shareholders. This payment was then offset against the company's final corporation tax bill. Certain recipients, such as pension funds, were entitled to advance corporation tax relief. This entitled them to reclaim the corporation tax.

ACT was scrapped by Gordon Brown, effective from 6 April 1999. [ [http://www.hmrc.gov.uk/consult/consult_2.htm HM Revenue & Customs: A modern system for corporation tax payments ] ] The scrapping of the relief was estimated to increase tax take by £3 billion per year. However, in recent years, the scrapping of the ACT relief scheme has been dubbed a "pension stealth tax", which, according to the Institute of Actuaries, has reduced the current value of pension funds by at least £100 billion. The change was dubbed "the great pensions swindle" by Frank Field in The Times, describing how "When Labour gained power in 1997, Britain’s occupational pensions were the envy of the world. We had more capital invested to pay tomorrow’s pensions than almost the whole of the European Union combined." [ [http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article1596955.ece The great pension swindle | Frank Field - Times Online ] ]

As of 2007, final salary pension schemes, which were once common in British companies, are very unusual, and Britain lags behind Europe in pension provision.

While the precise cause of the pensions shortfall has been variously blamed on poor gilt yield, on Thatcher-era taxes on pension fund surpluses, on the stock market crash of 2001, the ending of the advance corporation tax scheme, and in particular the relief available, is seen as a major blot on Gordon Brown's record.

The Times uncovered documents under the Freedom of Information Act in April 2007 that showed the chancellor had been advised that pension funds would suffer a £67 billion loss of the actuarial value of their assets, and that the measure would severely damage Britain's pensions, with the only bright spot that the £60 billion surplus that pension funds had in 1997, might protect them from the damage caused by the measure. [ [http://www.timesonline.co.uk/tol/news/politics/article1599843.ece Gloomy predictions that the Chancellor chose to ignore - Times Online ] ]

References


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