Clause 32 - Corporation tax starting rate and fraction for financial year 2002

Part of Finance Bill – in a Public Bill Committee at 3:45 pm on 16th May 2002.

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Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 3:45 pm, 16th May 2002

Right, but I have not had the benefit of it, so perhaps those who have will explain it to me. Let us take a simple example. I shall talk in round figures, because that is how my mind is working, and I stand to be corrected, because I am not an accountant. Ted's Window Cleaning, as a sole trader, turns over £15,000. My understanding is that Ted will pay low national insurance, although I am leaving that out of the equation for now. On his £15,000 a year, in round terms, he gets a personal allowance of £5,000 and, as a sole trader, he pays 22 per cent. on the £10,000, which is £2,200.

If Ted decides to incorporate his window-cleaning company, that company has a revenue of £15,000 and employs Ted for £5,000 a year as an employee, with higher national insurance contributions. He gets that £5,000 in his pocket. He leaves the £10,000 in the company and because it is below the level, his company is not paying any corporation tax on it. The following month, after the year ends, his daughter announces that she is getting married. He says, ''I haven't got any money.'' She says, ''Yes you have, dad, you've got this company with £10,000 in the bank.'' He says, ''You're right.'' As the shareholder, he takes it out of the company. He has extended his income. Does he not pay 22 per cent. income tax on that? I shall give way, because I am standing to be corrected.