Gordon Brown had been itching to find a way to clamp down on traders who had set up companies, in order to pay themselves dividends out of the profits free of basic rate tax and national insurance.

Over the last year hundreds of thousands of people, milkmen were a prominent example, changed from being sole traders to companies, because the Chancellor let off small companies from tax on their first 10,000 of profit, which they could then pay themselves as a dividend.

But from this month those dividends will be taxed.

The rate is 19 per cent, it’s only paid if the profits are distributed as dividends, not if they’re kept in the company to invest, and it won’t apply to companies with bigger profits, because they pay anyway.

Finance Bill

New details have emerged as today’s Finance Bill has been put together.

The tax is to be paid by the company, not by the individual.

It will hit new dividends paid this year, but taken from last year’s profit, but the tax payment can be delayed if the dividend taken is more than company made in profit in the relevant year.

The cry has gone up from small traders that they only set up companies because the finance and insurance training encouraged them by making tax on small companies less of a burden.

Now some of them are being penalised, often only months after making the change.

So if this does affect you should you change back to being a sole trader ?

Costly switch ?

Tax specialists say it can be quite costly to make the switch back.

Kevin Slevin from Solomon Hare Company finance insurance premium

“It is not as easy to investment mcgraw hill irwin series in finance insurance and real est
as it is to incorporate in the first place but if the company is small and has little or no assets it can be quite straight forward,” says Kevin Slevin from Solomon Hare Accountants.

“But if the shareholders do want to wind up the company and take the assets out of the company they must pay the market rates and those could be quite small.”

Also, being a limited company does give you some protection from law suits or sudden bills you might not be able to pay, so that’s worth bearing in mind before you change back.