Lib Dems Demand Consultation On Taxation Of Small Firms

1.32.27pm GMT Tue 24th Feb 2004

Liberal Democrat Small Business Spokesman, Brian Cotter MP has tabled a parliamentary motion demanding that the Chancellor publishes further details of his plans to change the way he taxes small limited companies.

Brian Cotter has also written to Gordon Brown condemning his refusal to consult with business owners ahead of planned Budget measures which could leave thousands of small businesses facing significant hikes in their tax and national insurance bills.

Commenting, Brian Cotter said: "Having recklessly encouraged thousands of small businesses to incorporate, the Treasury has now discovered that it is out of pocket because some companies are choosing to take their income as dividend payments in order to reduce their tax liabilities."

"Yet rather than admitting that his sums didn't add up and coming clean about his plans to alter the taxation system, the Chancellor is leaving thousands of small firms in the dark about how they will be affected by the changes."

"It is imperative that there is a proper period of consultation with small firms before any changes are introduced."

"Gordon Brown's excessive tinkering has created a complex maze of taxation which small businesses find it impossible to navigate their way around. Rather than offering financial incentives which favour one type of business structure over another, it would be far better if the Government taxed all forms of income equally, as part of a fair and transparent system of taxation."

ENDS

Notes to Editors

· Over recent years the Chancellor has offered incorporated companies various tax advantages that have not been made available to unincorporated firms. These have included a zero starting rate of corporation tax for taxable profits under £10,000. As a result, the number of incorporated companies grew from 67,761 in 2000 to 282,207 last year.

· Many of these new incorporated companies have chosen to receive a large proportion of their income as dividend payments in order to reduce their tax liabilities. The Treasury has therefore lost a great deal of money as a result.

· Paragraph 5.91 of the Pre-Budget Report 2003 therefore proposed that the Government would "bring forward specific proposals for action in Budget 2004, to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company."

However, the Chancellor has refused to publish further details of his plans and many of the newly incorporated firms now fear that they could end up facing hefty tax bills as a result.

· EDM 606 - IR591 and Small Businesses

Brian Cotter.

That this House condemns the Chancellor's refusal to consult with small firms regarding his announcement on IR591 in the Pre-Budget Report 2003; urges the Chancellor to be open and to publish further details of his plans to 'ensure that the right amount of tax is paid by owner managers of small incorporated businesses'; presses the Government to introduce a proper period of consultation prior to any new legislation that is unveiled; further notes that the Chancellor's excessive tinkering has created an impenetrable maze of taxation law which most small businesses struggle to comprehend; concludes that it would be more sensible to ensure that all forms of income are taxed equally; and therefore calls on the Chancellor to reduce burdens on business by introducing a fair and transparent system of taxation