AN expert team from the Professional Contractors Group (PCG) has analysed the impact of announcements in the recent Budget and concluded that while there were no real surprises for the freelance small business community, it was disappointing that the Chancellor had done nothing to ease the burden on small businesses or to remove the uncertainty and unfairness surrounding IR35 and S660A legislation.

The Budget was expected to herald the most significant changes for freelancers since IR35 was announced five years ago.

There had been much speculation about what form the measures announced in the Pre-Budget report - widely dubbed IR591 - would take.

The Chancellor could have levied National Insurance on dividends from close companies (as many predicted), removed the tax credit from dividends from close companies, deemed a market salary for freelance companies or removed the zero per cent starting rate of corporation tax.

Instead, what IR591 actually says is that regardless of the rate at which you pay corporation tax, any profits you distribute to individuals on or after 1 April 2004 must have had corporation tax paid at a rate of 19 per cent.

Profits retained within the company do not suffer this restriction, so the new measure does not affect reinvestment of profits in the business.

Simon Griffiths, PCG chairman, said: ". . . This measure will have greatest impact on those freelancers whose businesses are struggling or in their infancy."

Dr Simon Juden, PCG's legal director, said: "One aspect as yet unclear is what happens in respect of retained profits from previous years.

"Depending on turnover in those years, different rates of corporation tax may have been paid; we are not certain whether some form of apportionment is to be applied.

Freelancers who have been prudent and have saved up retained earnings from previous years to see them through lean times are potentially going to be hit hard by this measure."

Dave Smith, managing director of Accountax Consulting Limited, whilst welcoming the Chancellor's professed commitment to investment in small business, expressed dismay at what was not in the Budget.

"The Chancellor has done nothing to ease the burden on small business," he said.

"The confusion surrounding IR35 and S660 is untouched by this Budget. All he has done is to introduce another layer of tax on those companies making small profits -- the fledging businesses struggling on the margins of profitability.

"These are the very businesses encouraged to incorporate by measures originally introduced by him."