Freelancers have been concerned at the Government's latest stealth tax which could target their businesses since the Chancellor's Pre-Budget Report in December hinted in paragraph 5.91 that he was again setting his sights on the small business community.

Dawn Primarolo took this a step further last week by revealing that the definition of owner-managed companies is under consideration.

In reply to Mr Jack who asked the Chancellor how many owner managed small incorporated businesses pay tax?

Ms Primarolo replied: "There is currently no precise definition within current tax legislation of 'owner manager'. This issue is among those being considered by the Government in the context of its announcement in paragraph 5.91 of the 2003 Pre-Budget Report."

What is the 'wrong amount of tax'?
The Government has consistently defended its actions against freelancers by asserting that they want businesses to 'pay the right amount of tax'.

Mr Jack tried to force this issue by pressing the Chancellor on a number of points. He asked:

• what studies he (the Chancellor) has undertaken to determine whether small incorporated businesses are paying the wrong amounts of tax on profits extracted from their companies;
  
• what proposals he has to ensure that small scale enterprises are fully aware of the tax distinctions between their being (a) incorporated and (b) unincorporated;
  
• if he will make a statement on his proposals to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their companies;
  
• if he will define (a) profit extraction and (b) acceptable profit extraction for small incorporated businesses;
  
• if he will consult small owner managed incorporated businesses on his proposals to ensure that their tax contributions are correct in the light of the contents of paragraph 5.91 of Command Paper 6042;
  
• whether it is his Department's policy to encourage sole traders or partnerships to become small limited companies;
  
• whether his proposals in paragraph 5.91 of Command Paper 6042 will include measures to help small incorporated businesses to unincorporated;
  
• whether the right amount of tax referred to in paragraph 5.91 of Command Paper 6042 includes National Insurance.

Ms Primarolo replied: "The Government have introduced a number of measures to support unincorporated businesses, including cutting the basic rate of income tax, the introduction of the 10p starting rate of income tax, permanent 40 per cent. first year capital allowances and the introduction of the VAT flat rate scheme.

"Paragraph 5.91 of the 2003 Pre-Budget Report (Command Paper 6042) announced that the Government would bring forward proposals, to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits received from their company, protecting the benefits of low tax rates for the majority of small businesses.

"The appropriate details and definitions will be set out in the Budget Report."

Analysis
Shout99 has an area of the website dedicated to following news on IR591: click on:
News on IR591

Shout99 expert, Kevin Miller, has recently written several articles looking at what we know - and what is speculation - about the Government's intentions. They can be seen in the News on IR591 area.
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Susie Hughes © Shout99, 2004