Small business could pay for tax shortfall

Incentives for small business owners may be consigned to history as the Government seeks to plug a £34.2 billion funding shortfall, according to the Times.

The article claims that the Chancellor is questioning the disparity between the amount of tax paid by the different groups 'the self-employed, limited company owners and employees' and is looking at bringing them closer together. Some experts believe that he may even bring the categories in line with each other.

In a discussion paper put on the Treasury website last week, the Chancellor says he wants to 'ensure that incentives for growth and enterprise' for one group are not unfair to others.

However, in a tacit admission that the scheme is really about raising money, the Treasury, which faces the shortfall in the 2004-2005 financial year, says the incentives should not be 'unduly costly to the Exchequer'.

Anne Redston, tax partner in accountants Ernst & Young, the accounting firm, said: "The Government has a tax gap. Expenditure has gone up and it needs to find that money from somewhere . . . One way for it to do that is to level the playing field and end the financial discrepancies between what these different groups are paying."

Some accountants believe that the Government is most likely to increase the NI contributions of small company owners to the same level paid by the self employed. Mr Brown may also look at introducing national insurance on dividends, up to a certain level, for small company owners. Another route would be to tighten the expense regime for small company owners and the self-employed.

The Times gives the example of a self-employed person making £20,000 profit who would take home £15,559. An employee would bank £14,048, while a small limited company owner, paying himself a low salary with the rest made up in dividends, would take home £17,354.

Business groups say that they will fight any attempt to take away incentives that encourage people to start up their own businesses.

A spokesman for the Federation of Small Businesses said: "Small company owners do pay less NICs (NI contributions) than employees, but that is because they receive less benefits from the state."

Full article: Chancellor targets little man to pay for funding shortfall - Times