What is IR591?
The Chancellor of the Exchequer gave a Pre-Budget Report on Wednesday 10 December 2003 that alarmed UK small businesses with the announcement of "specific proposals ... to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company".
The proposals were sketched out in paragraph 5.91 of the Pre-Budget Report 2003, in a chapter entitled "Building a Fairer Society", hence term "IR591" was formulated.
The objective of IR591
The government clearly has concerns about "the longstanding differences in tax treatment between earned income and dividend income."
The proposed IR591 legislation is likely to involve charging National Insurance on dividends from companies with less than five shareholders. This will clearly result in much larger Income Tax and National Insurance for small limited company businesses.
Experts say that the impact could be far greater than IR35, and that it will raise over £1bn in extra tax for the Government.
This makes using an Employment Management Company such as Alternet essential for contractors and freelancers in the UK. Working through Alternet will put you into a compliant position where you are meeting all of your Income Tax and National Insurance obligations.
Work through Alternet and alleviate all worries about IR35 and IR591, and operate in an Inland Revenue approved, tax efficient way.
The exact transcript from paragraph 5.91 of the report
The Government has introduced a range of measures and targeted tax reductions to support small businesses; including through reform of capital gains tax, reducing the rate of corporation tax for smaller companies and the introduction of a zero rate, Stakeholder Pensions, and the abolition of advance corporation tax. These measures are encouraging the creation of more small companies, including through self-employed people incorporating their businesses. The Government is keen to ensure the measures it has introduced provide support for these firms taking on the opportunities and responsibilities involved in that transition, and to encourage them to reinvest their profits and grow their businesses. At the same time, the Government is concerned that the longstanding differences in tax treatment between earned income and dividend income should not distort business strategies, or enable reductions by tax planning of individuals' tax liability, and that support should continue to be focused on growth. The Government will therefore 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.