Small Business Minister attacks small businesses

Small Business Minister, Nigel Griffiths, has attacked small businesses for 'abusing' the tax system as a justification for the introduction of the 'dividend tax' - and has threatened that the Government 'will not tolerate' Section 660 practices, the tax on businesses owned by family or friends.

According to a report in the Times (see link below), Griffiths justified the Chancellor's decision to impose a 19 per cent tax on dividends because small businesses had been abusing the system.

He claimed that the tax break introduced two years ago - a zero tax rate for the first £10,000 profits - was intended to help companies invest, but instead, he claimed: "Sadly, they decided to take it out in income by switching it to dividends and putting it in their own pockets. That is not what the chancellor meant the tax break for. He meant it to pay for training, buy equipment and drive their businesses forward. So he decided that if it was being abused he would close the loophole."

He claimed the Chancellor, Gordon Brown, had been 'disappointed' by the way small business had acted and that they had 'they had taken advantage of Brown's good nature.'

Section 660

Griffiths also put small businesses owned by husband-and-wife on warning that they would not be backing down on Section 660 cases and that the Government 'Government would no longer tolerate the practice of dividing profits between them to minimise the amount of tax paid, regardless of how much work each did in running the company.'

He claimed they wanted to encourage the successful double-act teams who are driving the business forward together but we're not encouraging a husband who is running a business to avoid paying tax by taking his wife on to the books.

His comments were greeted with anger by small businesses and their advisers.

The first real test of the Section 660 approach will take place before the Special Commissioners in June, and all parties will be watching the outcome with interest.

For the full report see: Small Business: Minister attacks small firms over dividends - Times.