Corporation tax consultation offers little for freelancers

The Inland Revenue has published a corporation tax consultation paper, which sets out new proposals to "take forward the Government's reform of corporation tax aimed at supporting business competitiveness, productivity and growth, while ensuring fairness for all, .

For full details see the Revenue web site here:

Consultation

According to the Paymaster General Dawn Primarolo:

"Sustainable growth and economic stability are built on the platform of a thriving business sector. For that we need a tax system that underpins business competitiveness, and ensures fairness across all sectors of the UK economy. Today's consultation document marks the next stage in the Government's strategy to achieve that objective through the reform of corporation tax."

Reading this freelancers might have hoped that the proposals would at least re-examine the issues that the All Party Parliamentary Group on Small Businesses recently raised after their consultation on freelancing – see here for details:

All Party Parliamentary Group on Small Businesses

However the Paymaster General then goes on to add that:

"In 2002 the UK accounted for almost 30% of total EU inward investment. Today's publication builds on the UK's enviable position as an attractive location in which and from which to do business and further develops the wide-ranging proposals discussed in the August 2002 consultation document. I would urge businesses and all those with an interest in corporate tax to read and respond to the consultation."

As this indicates the issues being consulted upon relate far more to matters that might affect large businesses, especially those with groups of companies.

The three areas being dealt with are:

"- Rationalisation of the way in which the schedular system taxes different types of corporate income to provide more flexibility in the way in which losses from one activity can be set off against profits arising from another;

- Changes to the tax treatment of trading and investment companies to remove outdated restrictions and facilitate group restructuring; and

- Changes to the tax treatment of capital assets to reduce distortions in the tax system."

It also addresses the reform of corporation tax in its wider international context, recognising the influences of a competitive business environment, of international agreements and of legal developments.

For freelancers the only area of likely interest is in the first topic. At the moment companies must compute the profit or loss on each trade separately and there are restrictions on the treatment of losses which, if not absorbed by profits from other trades in the year they arise can only be carried forward or back against profits from the same trade. The Revenue is considering whether these rules should be relaxed.

This might just impact upon those freelancers who have several income streams in their business, which constitute separate trades.