Budget (7): Consultation on owner-managed companies

The Government has put a deadline of April 29, 2005 on its consultation about taxation and small businesses.

It took the opportunity to restate its belief 'that small businesses' decisions on which legal form to use should be made for 'commercial reasons'.

The consultation paper, 'Small companies, the self-employed and the tax system' opened a dialogue with small firms and their advisers on the strategic issues associated with these decisions.

In the March 2004 Budget, the Chancellor announced that: to ensure that targeted tax incentives support the Government's objectives for growth, enterprise and productivity, the Government proposes to consider the issues raised by the interaction with the tax system of definitions of the income of self-employment, and the remuneration paid to owner managers.

However, the Government came in for criticism about the lack of consultation with the small business community and that the exercise was more of an 'internal review'.

When it published the discussion document in December 2004, it asked specifically for comments on:

• how the government can improve targeting of incentives for growth and enterprise - for instance by adjusting the balance of tax and non-tax incentives;
  
• whether the Government should consider segmenting owner-managers of companies from other company owners for tax purposes;
  
• how the trade offs between the different tax treatments for different types of business can be managed, including between meeting the objectives of minimising the economic costs of raising tax revenue, and of minimising compliance and administrative costs; and
  
• whether and to what extent businesses would value the benefits of certainty and simplicity over specific incentive structures.

To download the full document, click on

Small companies, the self-employed and the tax system

Construction industry

The Treasury also said: "There are also issues with legal forms in the construction industry which means there is no clear dividing line between employment and self-employment. The Government is presently discussing with the industry a range of practical options to help clarify this dividing line, and so reduce tax avoidance and resolve any employment rights issues."