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Thousands of family businesses will face "severe financial hardship" if the Chancellor adopts controversial proposals to amend existing small business tax regulations.

According to the Professional Contractors Group (PCG) and opposition MPs, the measures outlined in paragraph 5.91 of the Pre-Budget Report - now widely-dubbed as IR591 - could have potentially devastating consequences for small firms.

"This could be one of the most significant tax proposals for many years, resulting in much larger income tax and national insurance bills for small business owners," the Professional Contractors Group warned on its website which aims to highlight the impending tax bombshell.

PCG notes that the Chancellor's Pre-Budget Report 2003 does not outline the proposed measures in any detail, but it refers to Government concerns about "the longstanding differences in tax treatment between earned income and dividend income".

"PCG understands that the proposed implementation is likely to involve charging National Insurance on dividends from close companies, that is, those companies with five shareholders or fewer. It is not yet clear what rate would be applied, how corporate shareholders would be treated, or whether entitlement to NI-related benefits would be endowed."

The Shadow Paymaster General, Mark Prisk MP, today wrote to Ian Durrant, PCG's director of external affairs, requesting support for a Parlimentary early day motion (EDM).

He called for all MPs to ask the Chancellor to consult small business groups before trying to steamroller through the controversial measures.

Durrant urges PCG members, freelancers and small business owners to contact their respective Members of Parliament: "The more MPs from all parties that sign this early day motion, the better chance Mark Prisk will have of challenging Ministers on the subject. PCG believes that the small business community should be consulted about any proposed measures."

The full text of the EDM reads as follows: "This House notes the Government's plans to reverse its tax treatment of owner managed businesses; is deeply concerned that this could result in severe financial hardship for thousands of family businesses and thus damage enterprise; asks the Chancellor to explain why his tax incentives went wrong; and urges him to meet with and consult small business representatives prior to the Budget."

PCG urged small business owners wishing to support the action should encourage their respective MPs to add their names to the list before Budget day on 17 March.

"You can write to your MP at the House of Commons, Westminster, London SW1A 1AA," said Durrant. "Or send a fax through www.faxyourmp.com; typing your postcode will identify your constituency MP." ®

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