News / Foundations’ reprieve over corporation tax

Foundation trusts have been given a reprieve from paying corporation tax on commercial profits after the government announced it was shelving plans to make the change for 2010/11.

A statement in October from HM Revenues & Customs (HMRC) said: ‘Ministers have chosen to defer the planned implementation of legislation bringing foundation trusts in to charge to corporation tax on profits generated on their commercial activities.  As a result foundation trusts will not become taxable on their profits with effect from April 2010.’

It continued: ‘This decision will give time for further dialogue on whether to, and if so how best to, introduce arrangements which will extend to all public healthcare providers, in particular NHS trusts. Any such wider legislative changes will not be introduced before the finance bill 2011.’

While there has been formal consultation on the proposals – consultation on the legislation was to begin this autumn – the HFMA through its FT Finance Technical Issues Group (TIG) has been in talks with HMRC and the Treasury over the past year, along with the NHS Confederation’s FT Network.

The discussions led to changes in the initial proposals, which had sought to tax any profits relating to income with a private sector source. Instead the intention had been to nominate taxable activities, which would have included private healthcare, pharmaceutical production and rental income.

The treatment of car parking income had yet to be resolved, but interest on bank deposits would have been excluded. But any plans to levy corporation tax have now been deferred for at least a year.

It is understood that a key problem was the creation of inequalities between FTs (subject to tax) and NHS trusts (paying no tax) – given that a key aim behind the proposals was to create a level playing field between the NHS and private healthcare.

The HMRC statement suggests that corporation tax could be brought in for all NHS providers from April 2011.

However, given the timing of next year’s general election, many believe it could be longer before any changes are made.

Paul Briddock, chairman of the HFMA FT Finance TIG, said the deferment made sense. ‘There have been a range of practical issues that we have worked through in our discussions with Revenues and Treasury,’ he said.

‘We are grateful they have listened to the issues we have raised and taken them on board,’ he added.