Because unincorporated businesses pay income tax, while incorporated businesses are subject to corporation tax, the former are subject to much higher tax rates.
‘It is a serious disadvantage in terms of a level playing field,’ said Peter Mitchell, director of the Small Practitioners Association.
He said the government should extend the same thresholds for corporation tax onto the self employed.
But he sees this as unlikely. ‘The intention of the government is to put people into “employed” areas rather than having them self employed because it is easier to both identify them and, of course, control them,’ he said.
Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, which issued a recent release on the subject is angered at the unfair treatment.
‘We don’t see any reason why unincorporated businesses suffer an unfair tax bias against them,’ he said. ‘There ought to be a separate regime for unincorporated businesses where they pay the same rates as corporation tax.’
The problems revolve around tax rates. While a small incorporated business which has profits of up to £300,000 is subject to corporation tax of 19%, an unincorporated small business must pay 40% on all profits above £34,515.
But the fact is that moving to incorporated status comes with its own pitfalls of over-complexity and increased costs and paper work.
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