Further hints about the IR591 legislation were given during recent parliamentary questions tabled by Michael Jack MP, Conservative MP for Flyde and a former Treasury Minister.
PQ : Chancellor how many owner managed small incorporated businesses pay tax?
Ms Primarolo replied: "There is currently no precise definition within current tax legislation of 'owner manager'. This issue is among those being considered by the Government in the context of its announcement in paragraph 5.91 of the 2003 Pre-Budget Report."
Mr Jack tried to force this issue by pressing the Chancellor on a number of points. He asked:
- what studies he (the Chancellor) has undertaken to determine whether small incorporated businesses are paying the wrong amounts of tax on profits extracted from their companies;
- what proposals he has to ensure that small scale enterprises are fully aware of the tax distinctions between their being (a) incorporated and (b) unincorporated;
- if he will make a statement on his proposals to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their companies;
- if he will define (a) profit extraction and (b) acceptable profit extraction for small incorporated businesses;
- if he will consult small owner managed incorporated businesses on his proposals to ensure that their tax contributions are correct in the light of the contents of paragraph 5.91 of Command Paper 6042;
- whether it is his Department's policy to encourage sole traders or partnerships to become small limited companies;
- whether his proposals in paragraph 5.91 of Command Paper 6042 will include measures to help small incorporated businesses to unincorporated;
- whether the right amount of tax referred to in paragraph 5.91 of Command Paper 6042 includes National Insurance.
Ms Primarolo replied: "The Government have introduced a number of measures to support unincorporated businesses, including cutting the basic rate of income tax, the introduction of the 10p starting rate of income tax, permanent 40 per cent. first year capital allowances and the introduction of the VAT flat rate scheme.
"Paragraph 5.91 of the 2003 Pre-Budget Report (Command Paper 6042) announced that the Government would bring forward proposals, to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits received from their company, protecting the benefits of low tax rates for the majority of small businesses.
"The appropriate details and definitions will be set out in the Budget Report."
Comment: At this point there are still no concrete facts about precisely what the proposals are going to be, and when they are going to come into force. Are the government really going to spring new legislation on us in April without any prior consultation after the trouble they had with IR35? It seems we are going to have to wait and see.