Press Release

For immediate release

Monday 28 October 2002

no tax on unrealised gains, urges iod

The Institute ofDirectors (IoD) today called on the Government to drop plans to tax companieson unrealised gains. Under the Governments proposals unrealised gains suchas where a property has increased in value but has not been sold could betaxed before any cash is generated.

The consequences ofcompanies being forced to pay tax before any profit had been realised would besevere - companies might have to sell assets just to find the cash to pay thetax.

Ruth Lea, Head of thePolicy Unit at the IoD, said:

Many profitablecompanies fail because of cashflow problems, so changes to the tax system whichforce companies to pay more tax, earlier, might force some companies out ofbusiness altogether.

The plea came in theIoDs response to the joint Inland Revenue/Treasury Consultation on Reform ofCorporation Tax.

The ConsultationDocument, published in August, proposes a number of major changes to the UKCorporate Tax System. Ostensibly the rationale for proposing the changes was tosimplify the tax system.

However, whilst someof the measures would indeed simplify the tax system they would do so at greatcost to many businesses, the IoD claimed.

We think these proposals are a case ofmoving too far, too fast. Everyone wants to see a simpler tax system but not ifthat comes at a cost to business, Ruth Lea said.

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The two main changesproposed in the Consultation Paper are:

Replacing CapitalGains with Income Basis Taxation.

Capitalgains are taxed on a different basis from annual profit under the currentsystem. The Government suggests taxing all accounting profit, includingunrealised gains, on the same basis.

Replacing capitalallowances with depreciation

Currently businesses get tax relief on certain assets at arate fixed by the government. For example, most machinery qualifies for taxrelief at a rate of 25% each year until tax relief has been given on the wholeamount. The rate set by the government will usually be different to the rate atwhich the asset is written off against profits in the companys accounts.

We are concerned that abolishing capital allowances willmean in practice that tax relief is less generous, and that manufacturers inparticular will be badly hit, Ruth Lea added.

Ends 28.10.02 No.127

Notes to Editors:

1.       The IoD(Institute of Directors) is a non-political independent organisation

with55,000 members. In addition to its wide range of business services, the IoD provides aneffective voice to represent the interests of its members to government and keyopinion-formers. It also brings the experience of business leaders to bear onthe conduct of public affairs.

2.       Copies of thefull response to the Consultation paper are available

from the Press Office.

Contact Points:

Derek Brownlee,Taxation Executive, tel. 020 7451 3212

Richard Taylor, PressOfficer, tel: 020 7451 3264

mobile and out of hours: 07721 734886

David Marshall,Director of Public Affairs, tel: 020 7451 3263

mobile and outof hours: 0776 4883420

email: press@iod.com

web: www.iod.com