Government Keep Moving Goal Posts For Small Businesses

12.54.00pm BST (GMT +0100) Thu 6th May 2004

The Government today summarily dismissed small business concerns about a controversial new tax. During DTI questions, Government Minister Nigel Griffiths rejected fears that the Government's u-turn on the taxation of incorporated companies has created an unstable environment for small firms.

Condemning the Minister's refusal to take the concerns of small firms

seriously, Brian Cotter MP, Liberal Democrat Small Business spokesman,said: "The Chancellor pulled the rug from beneath thousands of small incorporated companies when he chose to reverse their special tax status in the budget, just two years after he himself tempted them with a 0% rate of corporation tax.

"The smallest companies have now found that the cost of incorporation far outweighs the tax benefits they were promised.

"Many are now struggling to decide whether they should now go through the cost and hassle of disincorporating."

"Despite continually moving the goal posts, Ministers are continuing to sweep the fears of small businesses under the carpet.

"When even the Small Business Minister rejects their calls for stability and simplified taxation, it is clear the Government has no understanding of small businesses in this country."

ENDS

Notes

• Brian Cotter was responding to a comment made by the Small Business Minister, Nigel Griffiths, during Department of Trade and Industry questions in the House of Commons, this morning.

• Over recent years the Chancellor has offered incorporated companies various tax advantages that have not been made available to unincorporated firms. These included a zero starting rate of corporation tax for taxable profits under £10,000, which was introduced in the 2002 Budget. In the 2004 Budget the Chancellor was condemned for effectively reversing this special tax status by taxing the distributed profits of incorporated companies at 19%.

• Prior to this, the Federation of Small Business had consistently warned the Government that they were storing up trouble for themselves by creating a significant tax advantage for one type of business structure over another. As a result, many firms chose to take advantage of these tax advantages and the number of new incorporations rose from 67,761 in 2000 to 282,207 since 2000.

• The Treasury had not accounted for the fact that many of the newly incorporated businesses would choose to receive a large proportion of their income as dividend payments in order to reduce their tax liabilities. As a result, the Exchequer has been left out of pocket to the tune of over £1 billion a year (Institute of Fiscal Studies).