UK Government Prepares To Tackle Micro-Businesses

by Jason Gorringe, Tax-News.com, London

02 September 2004

According to a report in The Times this week, the UK government is considering going after those who choose to launch micro-businesses, or lifestyle businesses, with no intention of growing them into larger organisations.

The UK newspaper revealed that the proposed move, expected to be outlined in a consultation paper in the near future, is the result of increasing concern at the Treasury over the amount of revenue being lost as a result of the creation of such businesses.

Self-employed businessmen and women pay national insurance contributions at a lower rate than their employed counterparts (8% rather than 11%), and the Inland Revenue also loses the 12.8% national insurance contribution which would have been paid by their employer. In addition, lifestyle businesses are often run from home, have no employees, and are not intended to grow beyond their start-up size.

Although the issues are still being scrutinised, The Times reported that micro-businesses could see their national insurance contributions increase by 1-2%, with the tax hike imposed on those who fit the criteria in terms of profit levels. However, the self-employed sector and accounting community are concerned that such a move would catch all kinds of self-employed tradespeople, such as hairdressers, plumbers, and electricians as well.

Organisations such as the Federation of Small Businesses and the Institute of Directors are understood to have tabled a meeting with government officials and accounting firms later this month to protest the planned measures, and to stress the need for detailed consultation on this matter.

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