Almost every institution that works with small businesses in the UK is urging the Government to make clear their plans to 'make sure the right amount of tax' is paid by owner managed businesses following the Chancellor’s pre-budget report.
The zero rate of corporate tax, introduced in 2002, has led to a huge increase in incorporations. The Government is apparently concerned that many small business people pay themselves small salaries and take the rest of their income as dividends, because this produces a smaller tax bill.
Aidan O'Carroll, National Head of Tax at Ernst and Young, said:
"It is not right that 2 million small businesses should be left in this climate of fear. The Treasury should say what it's planning reveal its plans so that we can all make sure that tax legislation does what it's meant to do, which is surely to operate fairly. The complete lack of information and comment means that businesses are deferring decisions, such as whether or not to sign a contract or enter into a joint venture, because they do not know the tax outcome of the decision. makes me suspect that the Treasury knows full well that its plans will produce widespread anger and is hoping to hide the reaction in the welter of Budget headlines."
Anne Redston, a leading tax expert, who has been working with potentially affected groups to try and fathom what the Government is planning companies which may be affected by the new rules, said:
"Any anti-avoidance in this area is going to be extremely complex and full of difficult issues of definition. The zero rate of corporate tax was put in place by this Government. It was part of a package deliberately designed which Ministers knew would to encourage people to incorporate their businesses. Now the Government thinks it's been too successful, and is about to introduce anti-avoidance measures. But i. But instead of admitting that and withdrawing the zero rate, they have issued vague threats about dividends and sought to tar small businesses with the tax avoidance brush. ncorporating a company is not tax avoidance, it is simply a response to incentives made available by the government.
"Furthermore, if the legislation is brought in from Budget Day, or from 6 April 2004, it will take businesses by surprise. Many will be unable to meet their commitments, and will face hardship, if not bankruptcy.
"The government has also refused to consult on the measures, and there is thus a serious risk that the new rules will be poorly targeted, so that they catch more people than is intended. Shame on them."
Freelance UK totally agree, many of our site users have contacted us for further information on the implications of what has been dubbed IR591. We do not expect the Government to release any details until the Budget on March 17th this year. We will of course keep you updated should any news be released beforehand.
Feb 19, 2004
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