Chancellor Heralds Sting In Tail For Incorporated Small Businesses

11.48.07am GMT Mon 8th Mar 2004

Thousands of small companies are facing huge tax bills because the Chancellor is about to move the goal posts on tax breaks for incorporated companies. In the 2002 budget, Gordon Brown announced a zero rate of corporation tax for companies with taxable profits of less than £10,000. Many firms signed up to incorporate their businesses.

But in December's pre budget report, it was announced that proposals would be brought forward to ensure that the 'right amount of is paid by owner-managers of small incorporated businesses'.

Commenting ahead of next week's Budget, Brian Cotter MP, Liberal Democrat Small Business Spokesman, said: "Small businesses acted in good faith to incorporate their companies and take advantage of the tax breaks on offer."

"But having now changed his mind, the Chancellor intends to fill the treasury's coffers with the money he promised to those firms."

"The Chancellor cannot play fast and loose with small business revenues."

"A lot of those companies will have made plans to reinvest the promised tax breaks as part of their business plans. They will now be left high and dry, trying to deal with unplanned tax demands."

"The Chancellor must play fair with small businesses and come clean about his plans to take away the tax incentives that he gave them. In the long run, it would be far better for small firms 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. In 2002-03 new incorporations rose by 43% to 325,900.

• 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.