The government announced in its pre-budget statement that it would:-

�Bring forward specific proposals for action in Budget 2004, to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company, and so protect the benefits of low tax rates for the majority of small businesses.� Most commentators and tax experts agree that the most likely intention is to introduce national insurance on dividends for what is known as a �close company�. A close company is basically a company with 5 shareholders or less. (for more detail see�http://www.inlandrevenue.gov.uk/taxes_act_2000/vol02/icta_pt11/ictapt11.htm" )

For IR35 caught contractor freelancers this would most likely result in no change to their business taxation as they are currently forced to effectively pay out 95% of their turnover under the PAYE scheme in any event. However for non-caught freelancers and other small businesses, the effects could be quite dramatic.

Without some more detail from the government on this measure, it is impossible to do anything other than speculate about the level of these effects. Unless the legislation contains measures to protect struggling firms it may be that many will be forced to close down. Not because the taxation has forced the companies into a loss making situation but simply because those companies just become economically unviable for their owners. If you are struggling to make enough to live on, at a higher tax rate you just give up, sack your employees and do something easier.

Unfortunately for those of us that were around in 1999 when IR35 was announced, the current announcement is all too familiar. IR35 was announced not in the budget itself, but in a press release. This measure again is announced in a pre-budget statement. In both cases virtually no details of the measure were given. No consultation was planned over IR35 and we have now heard that none is planned for IR591 either. In common with IR35 we have, as yet, seen no Regulatory Impact Assessment. It appears so far that the government is yet again bent on introducing regulation with scant regard to its effect other than to top up treasury coffers.