The controversial dividend tax, also known as IR591, continued to attract attention in the House of Commons during the remaining stages of Finance Bill, when the LibDems tabled an amendment to reduce the 19 per cent tax level to five per cent.
Although the amendment was withdrawn without being put to the vote, it did serve to illustrate the stength of feeling - on both sides - of the House about this measure.
The debate relates to the Budget announcement that the Government intended to U-turn on the zero rating of incorporated small businesses because they felt people were taking advantage of the situation and paying dividends rather than reinvesting in their businesses as the Goverment had intended.
LibDem spokesman, Vincent Cable, who tabled the amendment to Clause 28, claimed to be looking for a more elegant way for the Government to back down. He also claimed it had antagonised several groups at the same time including those who incorporated in good faith; those who were already incorporated before the zero tax incentive was introduced; and those who are not incorporated but are still treated differently.
He claimed that there are two fundamental problems with the Government's approach. First, that there was a likelihood that there would be another change to the tax regime in the near future following the Government's review on owner-managed businesses; and secondly, that the change will be complex and disruptive.
Conservative spokesman, Howard Flight, claimed that the original zero rate was introduced as a piece of spin by the Government to make it look small-business friendly. He reminded the Paymaster General, Dawn Primarolo, that she had told small businesses not to look a gift horse in the mouth, and that the Government had failed to heed the warnings at the time that they were distorting the tax system.
Paymaster General, Dawn Primarolo, was not to be swayed by these arguments. She refuted the idea that it was complex, and claimed that the amendment to change the 19 per cent level to five per cent indicated that there was agreement with the principle of the approach.
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