PBR(13): Hints at more tax for freelancers

The discussion paper titled ‘Small companies, the self-employed and the tax system’ published as part of the Chancellor’s Pre Budget announcement raises the possibility of further tax increases for freelancers and small businesses according to contractor specialists, giant group plc.

In the paper the Government invites comments on whether it should ‘consider segmenting owner-managers of companies from other company owners for tax purposes’

Matthew Brown, Managing Director, giant group, said: "This sounds very ominous. Owner-managers of companies are already differentiated from other company owners for tax purposes by IR35 and the application of Section 660, so it’s a little perplexing as to what the Government is getting at.

"The suggestion appears to be that further tax differentiation between owner-managed companies and other companies is necessary, which raises the possibility of something along the lines of NIC on closed company dividends."

According to giant, this would complete a spectacular U-turn for the Chancellor after he personally encouraged the growth of owner-managed limited company structures by introducing the nil rate corporation tax band in 2002.

Tax-motivated incorporation

Under the heading ‘Tax-motivated incorporation’ the discussion paper also refers to the introduction of the 19 per cent minimum rate of corporation tax during Budget 2004, stating: ‘The Government will continue to monitor this area to ensure that its objectives for the tax system continue to be met’

This, says giant, implies that the corporation tax rate may be subject to further change at a future date, as early as the 2005 Budget.

Matthew Brown said: "One of the Government’s objectives for the tax system is to maximise the amount of tax it receives. Corporation tax receipts from multinationals have not boosted the Chancellor’s income in the way he hoped so he may be tempted to go for the easy target and hit small companies again."