<b>Budget 2006:</b> Small companies - you have been warned! By Rebecca Benneyworth

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The abolition of the nil rate band of corporation tax, and the related non corporate distribution rate was received with a sigh of relief by most practitioners, and even many of their clients. However, HMRC have not finished with those small companies yet, we now know.

There is to be another effort to eliminate tax motivated incorporation, and in particular extraction of funds as dividends from small companies, but this time we don't know which way the challenge will come.

Tucked away in paragraphs 5.85 and 5.86 of the Red Book are the following words:

  • 5.85Since the Pre-Budget Report, further evidence has emerged that employment income is being disguised as dividends in order to take advantage of the small companies' tax rate, often encouraged by promoters of mass-marketed managed...
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    Fair Share of Tax and NIC's
    What this means is that the state (Treasury) has a Royal prerogative to obtain Revenues from Crown Subjects, who have no individual rights in law, constrained only by the common law. This law does not extend to Corporations by the same degree.

    If the Queens representatives in Parliament (the State) cannot deliver clear and unambiguous law then there are no limits to what may be considered Revenue for the Crown.

    This is the principal reason why Parliament does not, or has no incentive to, provide good and unambiguous taxation law.

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    Excellent comments Rebecca
    Surely the professional bodies should be shouting this from the rooftops?

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