Tax credits blow will cost pounds 200m
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Your support makes all the difference.The abolition of dividend tax credits in the Budget will cost BT pounds 150m to pounds 200m a year in pre-tax profits by forcing it to pay more money into the company pension fund, it emerged yesterday, writes Michael Harrison.
This is one of the biggest hits that any UK corporation will face as a side effect of the Chancellor's decision to scrap tax credits for gross funds such as pension funds.
The BT pension fund, which has assets of pounds 20bn and nearly 370,000 members, had a pounds 600m surplus at the end of 1996 based on the last actuarial valuation..
Robert Brace, BT's finance director, said yesterday that as a result of a new valuation now being carried out by its actuaries Watson Wyatt, the fund was likely to slip into deficit.
This would result in a higher charge against BT's profit and loss account in the current financial year and beyond and also increased cash payments into the pension fund over time.
Of the fund's 370,000 members, 119,000 are contributing. At present the company puts in 9.5 per cent of gross earnings while employees contribute 6 per cent. But under the terms of the scheme, members' contributions do not change, meaning that BT has to make good any shortfall.
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