Small businesses feel aggrieved by closure of tax loophole

May 2004
Management Services;May2004, Vol. 48 Issue 5, p6
Academic Journal
Complexity and short-term cash flow problems arising from the closure of a tax loophole announced in the 2004 British budget is leaving smaller businesses aggrieved, claim business and financial advisers, Grant Thornton. In the budget, the British chancellor announced rules to counter the loophole he created which allowed small companies to pay out their profits as dividends with a zero effective tax rate for both the company and its shareholders. He introduced rules which took effect from April 1, 2004, which meant that a minimum of 19 percent corporation tax is charged when dividends are paid to non-corporate shareholders. Each time a dividend is paid, there will be a corporation tax charge. If a dividend is paid out of retained profits, tax may have already been paid on this and this extra tax cost may have a negative impact on a company's cashflow in the short term.


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