Minister Attacks UK's Small Firms For 'Pocketing' Tax Breaks

by Jason Gorringe, Tax-News.com, London

05 April 2004

The new 19% dividend tax on small incorporated firms has been levied by the government to stop owner-managers abusing the tax system and “pocketing” tax breaks designed to encourage small businesses to grow, Small Business minister Nigel Griffiths argued last week.

Speaking to the Times newspaper, Griffiths commented: "Small businesses told the chancellor and they told me that if we gave them a tax break they would use that money to invest in their businesses. Sadly, they decided to take it out in income by switching it to dividends and putting it in their own pockets.”

When Chancellor Gordon Brown decided to introduce a zero-rate of corporate tax on the first £10,000 of a firm’s income, Mr Griffiths pointed out that the intention was to help entrepreneurs pay development costs such as training and equipment. “So he decided that if it was being abused he would close the loophole."

He continued: "I'm not criticising people for doing that, but by choosing to do that they went against the government’s wishes. If people want to put money in their back pockets through their businesses that's up to them, but the tax regime isn’t going to help them."

The minister also attacked small husband and wife firms for manipulating the system to lessen their tax bills.

“We’re not encouraging a husband who is running a business to avoid paying tax by taking his wife on to the books,” he stated. “Where only one of those partners is growing the business, it's not our priority to target tax reliefs on them."

According to the Times, some 600,000 sole traders and partnerships have incorporated since Brown introduced the tax break two years ago.

Recommended