UK Incorporations Rise In Spite Of New Tax Measures

by Robert Lee, Tax-News.com, London

15 April 2004

The new 19% dividend tax rate placed on profits paid out by small firms announced by Chancellor Gordon Brown in the March budget has not discouraged incorporations which have continued to increase in recent weeks according to recent figures.

Mr Brown revealed details of the new dividend tax in the latter half of March, and statistics published by Companies House reveal that the number of incorporations in that particular week stood at 7,021. However, by the following week this had risen to a figure of 7,172, edging up to 7,243 in the next and final week of the 2003/2004 reporting year.

For the year, nearly 394,000 firms had incorporated, almost twice as many as when the present government came to power, boosted by the measure introduced by Brown two years ago allowing small firms to pay the first £10,000 of income in dividends tax-free.

However, fearing that sole-traders, partnerships and the self employed were exploiting the measure to pay themselves a tax-free income, the Chancellor introduced a new 19% tax on the profits paid out by firms generating less than £50,000 profit per year.

Nevertheless, tax experts say that incorporation remains attractive from a tax perspective although the tax savings have been significantly reduced by the measure, and point out that only the smallest firms will be adversely impacted by the decision, paying a maximum of £1,900 a year in additional taxation.

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