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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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CUK have been given information from a Govt source about the as yet unpublished details of the new tax on Small Companies, known as IR591. The details are rather vague, but it appears as though the new measures will mean a type of National Insurance being levied on dividends from what are known as Close Companies. Close Companies are, generally speaking, those which have less than 5 directors or shareholders. This does of course mean that almost all contractors, as well as hundreds of thousands of other small businesses, will be caught. The new National Insurance will be like the Class 4 NI that is currently levied on profits made by sole traders and partnerships. The rate is currently 8% for profits between £4615 and £30420 pa, and 1% after that. Bearing in mind the comments made previously by the Chancellor about the disparity between earned and unearned income, it would seem most likely that this rate would be similary applied to dividends. This measure would then give the Govt the ability to raise more taxes in future by small, incremental increases in this rate. It would of course also mean that they could reduce the rate in the 2005 budget, and in doing so be seen to be the "tax cutting" party in time for the next General Election. So, what would be the cost to contractors of this new measure? Well, it would be an additional £2064 pa for profits up to £30420, and another £1 for every £100 earned after that. Assuming that around 1 million Companies are caught this would raise well in excess of £2bn for the Govt which would go some way to plugging the black hole that is appearing. If these leaked details do prove to be valid then this is not quite the blow that we at first thought, and assuming IR35 is abolished as is generally thought, then contractors now caught by IR35 would actually be better off! Dec 18, 2003 Email this article Printer friendly page Previous Page
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