TaxCorporate TaxGive small firms a break

Give small firms a break

What a husband and wife get up to behind closed doors is sacred. Not so, according to the Inland Revenue.

Its decision to clamp down on the tax benefits traditionally enjoyed by sole traders, who divide shareholdings between spouses in order to take advantage of tax concessions on dividend payments, has not gone down well.

It has enraged small business owners – who were already disgruntled at the volume of red tape they are forced to cope with. It has also surprised and confused a few leading accountants, many of whom are convinced no good will come of it.

Small businesses have taken something of a battering under this Labour government. Tax benefits have been all but removed in an attempt to push businesses into incorporating because, apparently, they are easier for the Revenue to cope with.

Red tape has grown to such an extent that some businesses have gone belly up as a result, and the introduction of controversial tax legislation such as IR35 has not exactly helped. Gordon Stutchbury claims his company, Synaptek, was forced out of business as a direct result of IR35.

And I thought I’d save the best till last. The National Insurance hikes that are on their way will almost certainly result in further business failures. Small businesses will have to cough up around £2bn extra next year.

So what now? Will our beloved chancellor give small businesses a break? Will he introduce measures to remove some of the legislative burden from a sector that makes up over 40% of the UK economy? I fear not.

The results could be disastrous. A struggling economy and the prospect of a long, drawn out war in the Middle East do not sit together nicely.

The clampdown on tax rule S660A could form just one more nail in the coffin of British entrepreneurialism.

Faced with a £10bn black hole in government coffers, Brown’s immediate and ill-advised approach was also the simplest. Attack those that cannot fight back.

In the long run, he will lose out. Some would say he doesn’t care because he will no longer be in the job.

I would argue, however, that he might just be prime minister.

  • David Rae is technology editor at Accountancy Age

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