Tax reform for self-employed

Tax reform for self-employed

Government criticised for self-employed tax disadvantage. Nick Huber reports

Business and tax experts have called for the government to reduce the burden on the self-employed by creating a new tax category.

Brendan Burns, the Federation of Small Businesses’ vice-chairman, said that because the self-employed have to pay personal tax on all their profits, they miss out on cuts in corporation tax, floated in last week’s Green Budget.

‘I think the government should introduce a new tax entity for the self-employed, such as an enterprise category. It would mean paying less corporation tax and less income tax,’ Burns said.

Self-employed individuals enter the 40% income-tax band when they earn between #28,000 and #30,000. A company, on the other hand, pays a corporate tax rate of 21% on the first #300,000.

Michael Caden, partner at Mazars Neville Russell, accused the government of making the tax system unnecessarily complicated for the self-employed.

‘They seem to be moving away from a cash-based system where tax was calculated on money received less money paid. Now it’s on invoices received less invoices paid. You could invoice expenses until 30 November and still have to draw up accounts until 31 December.’

Caden added that the government should adopt the VAT cash-basis method for the self-employed. A spokeswoman for the Inland Revenue said that the individual still had the choice of whether to set up a public limited company.

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