|
|
Bad
company?
In April 2002, Gordon Brown made two announcements which drove a large number of people to turn their small businesses into limited companies: increases in National Insurance from 6 April 2003 (which could be avoided by being a company and paying dividends), and a nil rate of corporation tax on the first £10,000 of profit. The tax savings through operating as a company have been significant for the last two years.
Perhaps it was too good to last. The Pre-Budget Report in December contained the sinister promise that the 2004 Budget will include new rules "to ensure that the right amount of tax is paid by owner-managers of small incorporated businesses on the profits extracted from their company". No further details are given - but it's clear enough that "the right amount of tax" is "more than you want to pay" and almost certainly "more than you're paying now".
Without any details of what they will do, it's hard to know whether to pay dividends now, or move the business back out of the company, or just sit tight. It's probably best to do the last - wait and see, rather than rush into anything. It would be very harsh if any new tax actually made it worse to be a company than a sole trader - it ought to level up the playing field again, but no more.
There's a nasty suspicion that the announcement has been vague so that the Chancellor can read all the fevered speculation about what he might do, then pick the best suggestion (or worst, depending on your point of view). Watch this space for 17 March!
|
