The changes were first mooted when the Chancellor presented his Pre-Budget Report in December. Little concrete information is known about the Government's intention although paragraph 5.91 in the accompanying documentation clearly hinted that the Treasury would like to find a way to ensure that owner-managed companies pay, what they describe as, the right amount of tax.

Speculation has been growing about the Treasury's intention with some observers, including the FSB, thinking that his target will be dividends.

Neil Hamper, FSB Taxation Chairman said: "We can’t be sure about what is going to happen as the Chancellor has so far refused to shed light on the subject but the suspicion is that small companies will be forced to pay National Insurance on their dividends.

"When you are short of money, every little bit here and there helps. It is disappointing that in Gordon Brown’s desperation to increase the ‘tax take’ he is ignoring the Government’s promises about being open, consulting on changes and talking to people who will be affected."

The influential Treasury Select Committee last week backed the FSB’s calls and called on the Chancellor to publish more details 'in advance of the Budget'.

Limited company v. unincorporated
The FSB has expressed concern for some time that the push for small businesses towards incorporation would lead to problems. It is pushing for the introduction of a £10,000 tax free allowance for all small firms to 'level the playing field'.

The FSB said: "There are two main options regarding the legal format of a business - unincorporated business (sole trader, partnership), or limited company. Over the last few years the Government has introduced tax advantages for limited companies but not for unincorporated businesses. These have included a zero starting rate of corporation tax for taxable profits under £10,000 and a 19p corporation tax rate between £10,000 and £300,000.

"The FSB has consistently warned that that the Government was storing up trouble for itself by creating a significant tax advantage for one type of business structure over another. As a result many sole traders and partnerships have incorporated and the Treasury has been left out of pocket. The FSB believes that it is unfair of the Government to retaliate when this situation was entirely predictable. The FSB continues to call on the Government to introduce a £10,000 tax free allowance for all small firms to help to level the playing field."

More information
Shout99 has been following the so-called IR591 issue in some detail. We have a free information resource available by clicking here:

News on IR591
--
If you wish to comment on this article, please log in and use the Reply button below. Registering is free and easy - see 'Join Shout99'.
-
Susie Hughes © Shout99.com 2004