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| Boom and Bust: Taxing times for UK companies |
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| Written by Administrator | |
| Wednesday, 28 March 2007 | |
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Tax-Motivated Incorporation or Chancellor-Motivated Incorporation? In the small print of the Budget, he justifies this increase by obliquely referring to business owners "artificially incorporating as small companies to avoid paying their due share of tax". Clearly, this is just plain wrong; but let us for the moment accept his assertion, and ask if it is true, then why might that be? Well, the Chancellors introduction of the 10% personal tax band followed by its abolition 8 years later has precedence, you will not be surprised to learn. So lets see how he has messed around with Small Company Corporation Tax rates, shall we?
Give, give, give (or, at least, take a little less) As a result of this extraordinary largesse, incorporations rose, presumably as intended. Numbers of incorporations (new Limited Companies) rose from 238,000 pa. in 2000 to a peak of 390,200 in 2003. The number fell back to 333,700 in 2004 but it is clear that the tax changes encouraged the self-employed (typically "Sole Traders" - such as your average plumber or hairdresser) to incorporate. Presumably this is what the Chancellor wanted - he has always purported to be the champion of small businesses. However, as has become clear in so may ways, the Chancellor has not always fully thought through the consequences of his actions. We can just imagine the chagrin with which each of these changes was felt by HM Revenue and Customs, who no doubt saw precious tax revenues going down the drain as all the Self-Employed plumbers became Limited Companies, and in the process reduced their taxes. Tax Avoidance becomes Tax Evasion No surprise then that, once the Treasury had started feeding figures through to him about the "lost" tax revenue, he changed his tune and started accusing these perfectly normal, average small business people of being tax avoiders (a term which has no meaning, as it happens). The Chancellor, in collusion with HM Revenue and Customs, has also deliberately blurred the line between perfectly legal tax avoidance and planning, with tax evasion, which is illegal. To fix his self-inflicted problem, Brown launched a series of tax raids, branding those who had used each tax break that HE had introduced as "not paying their fair share of tax". He fooled few but himself, but it was typical Labour spin to justify an unconscionable action :
Prudence missing, presumed dead. Just how "prudent" is someone who will not listen to his own fiscal advisers and introduces measures that he has to reverse after a few years ? Not very, we suggest. One can speculate as to whether this was all deliberate, but we tend to think that this Government is not capable of working in such a joined-up manner The fact of the matter is, many, if not most, of the small businesses he has hurt by this latest tax rise are family-owned companies working hard to make an honest crust, and here and there create small-scale employment opportunities for others. They support their families and are proud to be independent and to keep themselves afloat, when working for themselves is too often the main alternative to being a drain on the public purse or working in a low-paid job. If the Chancellor needs to raise tax rates, we can understand, and can vote for or against his Government at the next election, but to have to spin another stealth tax as he has is hardly honest and open politics.         |
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| Last Updated ( Thursday, 29 March 2007 ) |
In the 2007 Budget, the Chancellor cut the Corporation Tax for large companies from 30% to 28%, which you might think is a Good Thing for British industry. However, as we have come to learn, what the Chancellor gives with one hand, he often takes back with the other. And unless you are running your own small company, you would be forgiven for missing the fact that at the same time he increased tax on small businesses by a whopping 16%, from 19% to 22%.| < Prev | Next > |
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