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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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The Chancellor announced today the long awaited details of what has become known as IR591. The details are as follows: As of 1st April 2004 any Company with profits less than £10,000 pa and distributing that income as dividends will lose the 0% Corporation tax rate, and pay 19% instead. So, what does this mean for contractors? If you Company profit is £10,000 or less, and you take the whole amount as dividends you will be £1900 a year worse off. Between £10000 and £50000, again assuming the whole amount is distributed as dividends you will be worse off on a roughly sliding scale by £1900 at £10,000 profits and no worse off at all at the £50,000 threshold. Profits over £50,000, or cash not taken as a dividend is absolutely unaffected. Coupled with the recent benefits of the VAT flat rate scheme we believe that most contractors will on the whole be no worse off. The full text from the Revenue PR is: Tax Treatment of Small Incorporated Businesses 1. Companies or groups with profits chargeable to corporation tax below the threshold for the small companies’ rate who make distributions to non-company shareholders. 2. The combined effect of measures introduced to support small business and the long standing differences between the tax treatment of earned income and dividend income have resulted in a number of businesses incorporating, solely or mainly, for tax reasons. 3. This measure puts matters on a more balanced footing by ensuring that when profits are distributed to non-company shareholders by a company or group, profits are charged at a minimum rate of corporation tax of 19%. 4. There will be rules to cover situations where distributions made exceed profits for the relevant accounting period. 5. [There will also be new requirements for companies to notify commencement of trading to the Inland Revenue, supported by appropriate sanctions.] 6. The minimum rate will apply to distributions made on or after 1 April 2004. The requirement to notify to commencement of trading will take effect from [ Royal assent?]. 7. The rate at which corporation tax is payable depends on the amount of a company’s profits for the financial year in question. Corporation tax is charged at the Starting rate (currently 0%) where profits are £10,000 or less, the Small companies’ rate (currently 19%) where profits are £50,001 - £300,000, and the main rate (currently 30%) for profits exceeding £1,500,000. Marginal relief is given to smooth the transition from one rate to another where profits fall within these limits. 8. The measure will ensure that a minimum rate of corporation tax of 19% is charged when a company makes distributions to non-company shareholders. Lower rates of corporation tax will continue to apply where profits are retained or are distributed to other companies. 9. [Currently, companies are required to notify chargeability to corporation tax but not to tell the Revenue they have started trading. A new additional requirement to notify commencement of trading within three months of that commencement will be introduced. This will bring the rules applying to companies broadly in line with those applying to the self-employed. Failure to comply with the requirement will mean a potential liability to penalties in accordance with the rules for special returns in section 98 Taxes Management act 1970.] Related budget stories: IR35 and IR591 avoidance schemes to be hit in Budget Mar 17, 2004 Email this article Printer friendly page Previous Page
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