Gordon Brown has blamed immigrants from Eastern Europe for his "need" to increase corporation tax for small companies from 19% to 22% by 2009. In evidence to the Treasury Select Committee... Mr Brown said East European workers were being encouraged to register themselves as companies to avoid paying income tax when they arrived in the UK.
"One of the problems that we have faced – and had to act upon – is that people who are coming to work in this country are being encouraged to form and work through managed services companies even before they come into this country."
He said it was a "problem that every country faces – but it is a problem that we are going to deal with and we are going to deal with in a way that does not penalise the good company that is investing in the future". [BBC]
Gordon's idea of 'not penalising the good company' is to give some improved tax allowances for companies that invest fairly substantial sums in plant and machinery. It's the company equivalent of tax credits for low paid workers. But many companies don't need to make any significant investment in equipment. It sounds good in the budget speech, but it means little.
"I [do] need to act to deal with individuals artificially incorporating as small companies to avoid paying their due share of tax, a practise if left unaddressed would cost the rest of the taxpaying population billions of pounds. And I will take action in a way that will not raise the tax burden on the self employed and small businesses overall." [Budget Speech]
So thousands of small companies will have to pay more tax because of the alleged misdemeanours of a few East European workers. And remember these immigrants are the very people the Government is so keen to have here, "helping to fill gaps in the UK's labour market, especially in administration, business and management, hospitality and catering." [BBC].
It's worth checking back on Gordon's feelings about small companies five years ago, in the 2002 Budget speech:
"Small businesses account for nearly half the economy's output and 55% of all jobs in the private sector – over 10 million jobs in all. And the small firms of today are the big firms of the future.
"We want to see a more enterprising Britain where, in every region, more small businesses are starting up and where you can work your way up – a ladder of opportunity from employment to self-employment, from micro business to growing business – with government on businesses' side as firms hire for the first time, as they invest, as they seek equity, as they export and grow...
"And to send out the strongest signal about the importance we attach to small businesses and the creation of wealth I propose to reduce the starting rate of corporation tax - also with immediate effect - from 10p to zero. Small companies with taxable profits of less than £10,000 will pay no corporation tax.
"With the starting rate of tax cut from 10p to zero and the small companies rate down from 23p in 1997 to 19p this is now the most favourable corporation tax regime for small companies in any of the advanced industrial countries."
And I seem to remember (though I can't lay my hands on a reference) that one reason for introducing either the 10p or the zero rate was to encourage sole traders to form limited companies. When thousands had done so, Gordon later pulled the rug from under them by abolishing the rate. Talk about micro-managing!
