Around 25% of accountancy firms will face a tax bill that is more than 50% higher than normal when they adopt UITF 40, says the Consultative Committee of Accountancy Bodies (CCAB).
A further 17% of firms will face a bill that is more than double their normal tax liability. The figures are based on research conducted over the summer by CCAB bodies, to support the request for a ten-year spreading relief to help counter likely hardship arising from the adoption of UITF 40.
As reported previously on AccountingWEB, the CCAB originally made its request for a spreading relief in June. At the time Paymaster General Dawn Primarolo asked for evidence of likely hardship resulting from Abstract 40. Since then, the CCAB has been working with the Law Society to gather data, which has now been sent to Primarolo.
In the covering letter sent with the research findings, CCAB chairman Ian Morris and Law Society president Kevin Martin point out that a typical high street business may not be able to fund the additional tax charge from the bank and may therefore go under. Firms hit especially hard will be those run by the proprietors, who didn't have to put a value on their own time under the previous accounting standards, and who valued WIP in line with the guidance note agreed between the accountancy profession and the then Inland Revenue in November 1998.
"Given the data and these concerns, we maintain that a ten-year spreading would be reasonable and should alleviate most of the financial hardship that will result," say Morris and Martin. "We understand and appreciate that you would prefer any spreading to be over a shorter period. Nevertheless, we are concerned that many businesses will struggle even with a ten-year spreading and that anything shorter may result in businesses folding."
The letter goes on to say that small firms with less than 10 partners or proprietors will be hit proportionately harder than large concerns, but given that large firms will also face some big adjustments, there should be no restriction on the size of the firm if spreading relief is given.
The data submitted to the Paymaster General was based on research among members of the Institute of Chartered Accountants of England & Wales (ICAEW), the Institute of Chartered Accountants of Scotland (ICAS) and the Association of Chartered Certified Accountants (ACCA). Evidence was also collected from Law Society members, but wasn't included in the submitted data for technical reasons. However, it did support the research findings. The CCAB stressed that many other types of business are likely to be affected in a similar way - from estate agents and IT consultants to doctors and surveyors.
In a statement announcing the findings, Ian Morris said: "Discussions have continued in a constructive manner and we are planning to have a further meeting soon with representatives of HM Revenue and Customs and HM Treasury to discuss the results. We will continue to press the case for a spreading relief to be made available to all businesses affected by UITF Abstract 40, but as yet we do not know whether a relief will be made available. We will provide a further update in due course."
The full text of the letter and the research data can be downloaded from the ICAEW website.
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