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Deferment plea for overseas tax rule

THE ASSOCIATION of Consulting Engineers has made a last ditch bid to lessen the effects of the abolition of Foreign Earnings Deduction rule for British consultants working overseas.

The new legislation, introduced by Chancellor Gordon Brown in the last budget, will force all expatriate workers to pay tax in the UK. It is likely that consultants will have to increase fees and shed jobs on foreign contracts to meet the extra costs.

In a letter to shadow Chancellor Francis Maude last Friday, ACE chief executive Nicholas Bennett called for an amendment to the Finance (No 2) Bill which would defer payment for existing contracts in place on the day of the last Budget.

Bennett said: 'We want to try to salvage something from this sorry affair by protecting those who are already on contracts and firms who have had tenders accepted on the basis of the old rules.'

However, two other amendments on threshold values for the abolition of the rule have already been rejected, and it is thought unlikely the Government will back down on the legislation.

ACE's move was supported by consultant Buro Happold. In another letter to the Chancellor this week, finance partner Rod MacDonald claimed that British overseas staff wages will have to be increased by more than 50% to maintain earnings levels abroad. He warned: 'The inevitable consequence of this decision will be that our fees will increase, making us less competitive, resulting in a loss of contracts and a reduction in staff.'

Prior to the 17 March Budget, any earnings for employees working overseas for a period of more than 365 days were exempt from UK income tax (NCE 26 March). Abolition of the relief leaves British firms competing on an uneven basis with companies from other European countries where similar rules still apply.

Matthew Jones

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