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UK Small Businesses Operating Under Cloud Of Tax Uncertainty, Say Accountants

by Jason Gorringe, Tax-News.com, London

25 February 2004

Accounting professionals in the UK are calling upon the government to reveal its tax plans for small owner-manager businesses.

There is a widespread belief amongst tax professionals that the government is planning to increase taxation on small incorporated businesses, after Chancellor Gordon Brown’s pre-Budget report indicated that he intends to “bring forward specific proposals to ensure that the right amount of tax is paid by owner-managers of small incorporated businesses on the profits extracted from their company".

This has led to speculation that Brown may abolish one of his own measures which allows firms a zero-rate of corporation tax on the first £10,000 of taxable profits, or impose NI (National Insurance) contributions on dividend income as early as next month’s budget.

However, the government has failed to issue any useful clarification of Brown’s remarks, and members of the accounting profession have noted that the continued uncertainty is having a damaging effect on many small businesses.

"It is not right that 2 million small businesses should be left in this climate of fear,” argued Aidan O'Carroll, National Head of Tax at Ernst & Young, continuing: “The Treasury should say what it's planning (and) reveal its plans so that we can all make sure that tax legislation does what it's meant to do, which is surely to operate fairly. The complete lack of information and comment means that businesses are deferring decisions.”

Anne Redston, tax partner at E&Y, added: "The government has also refused to consult on the measures, and there is thus a serious risk that the new rules will be poorly targeted, so that they catch more people than is intended.

"Furthermore, if the legislation is brought in from Budget Day, or from 6 April 2004, it will take businesses by surprise. Many will be unable to meet their commitments, and will face hardship, if not bankruptcy." she remarked.

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