Let the good times roll with a tax break, Brown is urged

The restaurant and corporate hospitality industries could receive a massive shot in the arm if the Chancellor, Gordon Brown, accepts a plan being put forward today by Britain's main accountancy body.

The Institute of Chartered Accountants in England and Wales (ICAEW) is calling on the Government to make entertainment expenses tax deductible once again. They were disallowed in 1970 after a House of Lords ruling in an appeal by Associated Newspapers, publisher of the Daily Mail, against an Inland Revenue decision.

ICAEW is responding to last week's Treasury consultative paper on the reform of corporation tax.

Ian Hayes, chairman of the Institute's Tax Faculty, said: "We believe that if the Government is serious about aligning tax treatment more closely with accounting treatment, then it should go the extra mile and make a commitment to base the tax charge solely on the accounts. If the Treasury sees itself as an interested stakeholder along with shareholders and staff, it too should value a company for tax purposes in exactly the same way as the other stakeholders; namely using the audited accounts."

At present, when the Inland Revenue is deciding how much tax a company should pay, it takes the audited pre-tax profit and adds or subtracts to take account of a host of items such as capital allowances and spending on entertainment.

ICAEW's Frank Haskey said: "We believe that the Inland Revenue will collect just as much tax if it simply took the audited profit, without all the time and effort needed to produce these extra figures – and if it ended up collecting less the Chancellor could always adjust that in the Budget. There would be winners and losers, but allowing entertainment expenses is not such a big deal: we are not talking about huge amounts of money here. The question is: is it worth the expense of working it out?"

Many companies, particularly in media and advertising, regard business entertaining as an integral part of their operations. Other commercial organisations entertain as part of their sales and marketing. At present it cannot be set against profits.

Rona Shepherd of Match Point, one of Britain's biggest hospitality organisers, said: "The impact of making entertainment tax deductible would be fairly huge, because people would see it as a more viable proposition. At the moment, everything has to be justified several times over. That would slacken again if this came into effect."