City urges delay in private equity tax reforms


The British Private Equity and Venture Capital Association, the British Property Federation, the Investment Association, the Institute of Chartered Accountants in England and Wales, and the Chartered Institute of Taxation are all pushing back on the changes to the tax deductibility of debt are due to come in to effect in April 2017.

The proposed rules will limit the way heavily indebted companies – such as those owned by private equity – can lower their tax bills by deducting what they pay servicing their debt.

But the trade bodies said that implementation should be delayed until at least 2018 to give businesses time to prepare, particularly given the economic uncertainty thrown up by Brexit.

• VIDEO: The ways private equity cuts its tax bill

The BVCA said the issue of timing was “extremely important” and that private equity-owned companies may breach their loan documents, known as financial covenants, and cut jobs as a result of the changes, according to a consultation document published in August.

It added: “Ideally, all of this would be deferred until 2018.”

The Investment Association, which represents the UK’s asset management industry, said in a consultation document that the 2017 introduction seemed “rushed” and that Brexit had created an “uncertain business landscape” where it would be important to maintain the UK’s competitiveness. “Postponing the introduction of new rules until economic forecasts become clearer would therefore be preferable,” it added.

The rule changes are part of crackdown on tax avoidance by the Organisation for Economic Cooperation and Development BEPS programme and will see companies only able to deduct interest payments of 30% of their earnings before taxes depreciation and amortisation for tax purposes. The government closed a consultation on the matter on August 4 and is expected to announce fine detail of the new rules in the Autumn Statement.

Ian Fletcher, director of policy finance, at the British Property Federation, said in a statement: “Now is not the time to be adding to the uncertainty faced by businesses. Investment in commercial real estate is an important cornerstone of the UK economy, and implementing these measures without properly considering their implications for investment could be storing up problems for the future.”

The Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales both said in consultation documents that the policy should be delayed by two years.

Neville Wright, a partner at law firm DLA Piper, said that some private equity firms may begin to “panic” by the end of the year if there is no delay to the implementation of the rules. He added that the other European Union countries will implement the reforms later than the UK.

He said: “You do wonder whether [Chancellor of the Exchequer Philip] Hammond wouldn’t take the opportunity to say ‘we are business friendly, we are still at the forefront of BEPS but we are not going to be the first to implement’.”

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