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The proposal is outlined by the IFS, an independent economic think-tank in its annual Green Budget setting out its thoughts on the UK economy and options available.
In the company taxation section, it also offers a mild rebuke to the Government for publishing a third corporation tax consultation document, while recognising that there are interntional pressures beyond the Government's control as the UK is competing with other countries to make itself an attractive location for businesses.
Company taxation
The IFS's Green Budget says:
Issues raised for consultation
"In August 2003, the government published a corporation tax reform consultation document for the third summer in a row. Continual consultation does not provide a stable environment for business planning, but the corporate tax system is facing international pressures beyond the government's control. First, the UK is competing with other countries to make itself an attractive location for businesses. Second, multinational companies are becoming more willing to take national governments to the European Court of Justice if they believe that tax regimes discriminate against them."
Incorporation
The 2002 Budget announced a new 0 per cent corporation tax rate for companies with taxable profits below £10,000. The Treasury predicted that this would cost £265 million in 2003-04, but IFS, among others, predicted that the costs would become much greater. The new rate increased the incentive for many self-employed people to form companies in which they are the sole employee and shareholder and thereby reduce their tax bill. The number of incorporations has jumped sharply in the wake of the 0 per cent rate's introduction.
"The Chancellor now appears to be considering steps to reduce the differential tax treatment between the self-employed and incorporated businesses, possibly by increasing dividend taxation. A simpler solution, if there is a concern over tax avoidance, would be to remove the 0 per cent corporation tax rate. However, frequent changes to the tax system, particularly if made without prior consultation, do not lead to a stable environment for businesses making long-term investment decisions."
News on IR591
Shout99 has a free resource centre on the issues surrounding IR591 - a Treasury proposal to ensure small companies pay the right amount of tax.
For more information, see www.shout99.com/ir591
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Susie Hughes © Shout99.com 2004
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