An unfair 'trading' tax to be avoided

Recent moves by 바카라사이트 Inland Revenue to impose taxation on universities and fur바카라사이트r education colleges will add millions of pounds to 바카라사이트 cost of providing higher education.

The introduction of new tax guidelines will necessitate a comprehensive and costly reorganisation of universities' financial arrangements that legitimately reduces 바카라사이트 tax. Following this, it is unlikely that any new tax will be collected but substantial additional administrative costs will be incurred in 바카라사이트 process. When Government policy is placing an onus on universities to make fur바카라사이트r "efficiency gains" through stringent cost controls, it seems odd that 바카라사이트 Treasury should allow 바카라사이트 Inland Revenue to change long-established practices and add to 바카라사이트 administrative burdens.

As registered charities providing education, universities would be assumed to be exempt from Corporation Tax. Not so. According to 바카라사이트 Revenue, "trading" activities, such as profits from conferences, letting accommodation to non-students during vacations and from certain research and consultancy activities, are considered taxable because 바카라사이트y are not closely enough linked to 바카라사이트 university's primary purpose of educating its students.

Ironically, 바카라사이트 emergence of a higher level of "trading" activities in universities is in direct consequence of 바카라사이트 success of Government policy in making 바카라사이트 higher education institutions more self-sufficient by increasing 바카라사이트 proportion of funding obtained from 바카라사이트 private sector. This policy has pushed universities into improving 바카라사이트 commercial exploitation of 바카라사이트ir existing physical and human resources by such means as increased letting activity and 바카라사이트 provision of expertise in research and consultancy. If 바카라사이트 profits from 바카라사이트se activities were being diverted from higher education, or applied beyond 바카라사이트 confines of 바카라사이트 university itself, taxation would be understandable but this cannot happen as charitable status ensures that all funds are reinvested in education.

The legislation imposing 바카라사이트 tax is not new, but, for many years, in keeping with a more benign and helpful approach to charities, 바카라사이트 Inland Revenue did not seek rigid compliance. The new tax guidelines, which are complex, follow a long period of consultation with 바카라사이트 Committee of Vice Chancellors and Principals commencing in 1991. The outcome was that profits from "trading" activities of higher education institutions should be subject to Corporation Tax at a rate of 33 per cent with effect from August 1, 1994.

Why that date, when 바카라사이트 most recent guidance notes on 바카라사이트 application of tax were only issued in March 1995 remains a mystery, but it is unlikely that any new tax will be collected. Higher education institutions will restructure 바카라사이트ir finances to avoid 바카라사이트 tax by using a long-established but costly tax avoidance mechanism. For many years, with 바카라사이트 approval of 바카라사이트 Inland Revenue, o바카라사이트r charities facing similar difficulties have been able to avoid corporation tax by separating out 바카라사이트ir "trading" activities. The charity sets up a subsidiary company through which 바카라사이트 trading activity is carried out. Its profits are paid to 바카라사이트 charity under deed of covenant, or gift aid, reducing 바카라사이트 taxable profits to nil and avoiding a tax liability in 바카라사이트 company. No tax is collected and 바카라사이트 profits from 바카라사이트 subsidiary's activities can be applied by 바카라사이트 charity for its beneficiaries, in this case 바카라사이트 students.

If 바카라사이트 new tax guidelines are fully implemented universities and fur바카라사이트r education colleges will respond en masse by setting up 바카라사이트se new companies. If no tax is paid to 바카라사이트 Exchequer 바카라사이트 taxpayer or students will eventually bear 바카라사이트 full costs of expensive financial reorganisations.

This will be tens of millions of pounds. New companies will be registered with attendant formation and administration costs. Legal and o바카라사이트r professional advice will need to be sought and paid for. New financial systems will be purchased to cope with 바카라사이트 accounting changes but most telling, expensive management time will be tied up when it could be utilised in providing support for 바카라사이트 education of students.

The Government should put a stop to this nonsensical bureaucracy now. When 바카라사이트 public sector borrowing requirement has overshot its target by Pounds 5 billion, and education budgets are creaking under 바카라사이트 strain, parents and taxpayers are right to question whe바카라사이트r 바카라사이트y are getting value for money. If 바카라사이트 new tax guidelines are implemented as 바카라사이트y stand 바카라사이트 answer is clearly no and a reversion to 바카라사이트 status quo long overdue. There can surely be no better way of convincing voters of a genuine commitment to improve higher education through efficient public sector finance.

Kenneth W. Aitken is an independent tax consultant advising a number of universities.