Clause 31 - Small companies' rate and fraction for financial year 2002
Finance Bill
3:00 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I am sorry to disappoint the hon. Gentleman, but I am not attracted to this amendment, either. On the law of averages, I am sure that he will succeed on at least one amendment by the end of the Finance Bill—or more, if he is very busy and writes lots of them. However, I have not put down a challenge. I will consider very carefully the quality of the hon. Gentleman's amendments; he does not need to table them in quantity.
As I explained when we debated the previous clause, the Government want to do all that they can to support businesses large and small and to encourage investment. However, the proposal in the amendment does not help achieve that. It seeks to compare the tax charged on a self-employed person and the amount of tax that would have been charged had the individual been chargeable to corporation tax. Like the previous amendment, it sounds like an attractive proposition, on the surface. However, it would ask small
businesses, their advisers and the Revenue to indulge in fantasy to construct an alternative, hypothetical version of reality, which would make it a bit difficult to write tax legislation.
The amendment asks what tax the business would have paid if it had been a company, subject to the corporate rules for reliefs, losses and so on. The answer to that question is not only complex but impossibly difficult because it depends on the real-world choices and decisions that would have been made in the alternative reality. The amendment attempts to treat companies and individuals as though they were the same. It ignores the fact that companies are distinct entities with a distinct legal status, and it amounts to a one-way bet: unincorporated businesses could choose to be taxed on the same basis as a company without taking on the obligations that go with corporate status.
The amendment is also a convoluted way of trying to benefit small businesses, which I absolutely accept is the hon. Gentleman's intention. Small, unincorporated businesses already receive appropriate incentives; for example, special rules for start-up businesses allow them to carry back losses in the first year of business against any income earned in the previous year, and investment incentives such as enhanced capital allowances that are available to companies are also available to unincorporated businesses.
At present, the amendment is not a priority for the Government, and it would be costly. It is difficult to work out how costly it might be because the amendment does not stipulate how the retained profits of unincorporated businesses would be measured. I know that many hon. Members will understand much better than I that that is a task fraught with difficulties because the concept of retained profit is not meaningful for unincorporated businesses.
As the amendment stands, I have said to the hon. Gentleman, ''No, thank you.'' I am not attracted to it and, if it is pressed to a Division, I would ask my hon. Friends to oppose it. However, the hon. Gentleman raises, as other hon. Members have in debates on previous Finance Bills, the difficult balance between being incorporated and unincorporated, and whether the Government are trying to drive companies to be incorporated through the tax system. Since 1997 the Government's policy has been to attempt to allow companies that choice—to be incorporated or unincorporated—and to put support in place for those companies where we can. Of course, that is not perfect, and it is difficult to do that. However, it is right for every Finance Bill, and we have had this debate during proceedings on every Finance Bill that I remember. It is important to keep the debate about what any Government do to keep that balance, at the forefront of consideration.