Small businesses face a potential double tax hit at the end of the month, as
changes expected in the pre-Budget report combine with the ongoing Arctic
Systems row to raise their prospective tax burden.
The pre-Budget report is expected at the end of the month. Chris Sanger, tax
partner at Ernst & Young, is predicting that changes in the treatment of
owner-managed businesses could hike tax bills by 15%.
‘Last year, the government announced a discussion paper into the differences
between self-employed and incorporated owner-managed businesses. The Treasury
expressed the view a wrong one, in my view - that differences between the two
should be tax-neutral,’ Sanger said.
That discussion has now come to a head, and Sanger believes the Revenue will
move to ensure the two types of business are tax-neutral.
At the moment, individuals can incorporate their business, reducing their tax
liability by paying themselves a large dividend and avoiding employers’ national
insurance contributions. Sanger thinks the government will start treating such
dividends as salary for tax purposes.
Around the same time the pre-Budget report appears, the Arctic Systems case
against HMRC will come before the Court of Appeal, on 29 and 30 November. The
small technology consultancy paid Geoff Jones a lower rate while paying a higher
dividend to his wife, who also worked in the business, to maximise the use of
About 300,000 businesses are thought to be structured in a similar way to
A spokeswoman for the Professional Contractors Group said that if the two dates
clashed, it would ‘add to the uncertainty for thousands of small businesses’.
Report argues that the government must change the way it makes tax and budget decisions
Committee expresses concern about costs to businesses and April 2018 implementation date
Andrew Tyrie airs views on the Finance Bill, 'Making Tax Policy Better' report, and Brexit
Top 25 firm HW Fisher & Co has acquired London firm Rhodes & Rhodes