Business groups have given a positive reaction to the Budget’s freeze on taxes and pledge to combat red tape, although there was criticism of the chancellor’s decision to close the ‘loophole’ for small limited companies and fears of future tax rises for businesses.
Here we look at the response to the significant small business points contained in the Budget -
There was almost universal business pleasure at the widely-predicted freeze on most business taxes, as the chancellor decided not to squeeze companies for money to fund public services.
Digby Jones, director general of the Confederation of British Industry (CBI), said that the Budget was an “innovative and meaningful package”.
“The chancellor has heeded company warnings about damaging rises in business tax and responded to calls for measures to invest in enterprise, education, science and transport.
“We welcome the mix of a freeze of rates on taxes such as air passenger duty and vehicle excise duty. This has been usefully combined with improvements to taxes such as the Climate Change Levy,” he said.
Brendan Barber, general secretary of the Trades Union Congress (TUC), also welcomed the Budget, saying that Gordon Brown’s “steady-as-she-goes” announcement struck the right note.
“The chancellor has seen off his critics who were predicting cuts in public expenditure or increases in tax,” he said.
However, there was criticism of the decision to introduce a tax on distributed profits to close the ‘loophole’ of sole traders incorporating in order to avoid tax.
Simon Sweetman, of the Federation of Small Businesses (FSB), said that it was “amazing” how quickly a concession to encourage enterprise can become a loophole.
“This move will hit ordinary family businesses hardest when it is the loopholes exploited by the rich that cost the Exchequer money.
“In the 2002 Budget, Gordon Brown announced changes to corporation tax which provoked a rush of self-employed individuals to incorporate in order to take advantage of the tax break. It is now unfair of the chancellor to retaliate with a 19 per cent distributive tax, when this rush was entirely predictable,” he said.
CBI chief Jones said: “We will work constructively with the government on this issue (tax avoidance) but ministers must aim for clarity and avoid unnecessary complexity.”
Business leaders welcomed the promise to tackle regulation and to cut “unnecessary” red tape. The decision to relieve firms of the burden of paying “in work” benefits, such as the Working Tax Credit, was particularly well received.
“The IoD have been calling for this move at every Treasury meeting attended since Tax Credits were introduced,” said George Cox, director general of the Institute of Directors (IoD). “Indeed, research shows that this has become an even bigger admin headache than routine handling of PAYE and National Insurance.
“The move could release employers, particularly small businesses, from a huge administrative burden.”
FSB spokesman Simon Sweetman said that small employers feel that they act as unpaid tax collectors and unpaid benefits agents for the government.
“We are pleased that the Treasury is to look at removing the working tax credit from the payroll as it will result in significant cost savings for small businesses,” he said.
Digby Jones said: “Firms will be encouraged by commitments to cut regulation and improve the planning system in a bid to stimulate much-needed development.”
Although business taxes remained more or less the same in the Budget, business leaders expressed concern that if the chancellor’s optimistic economic growth forecasts did not materialise, small firms could be hit by tax rises in the near future.
Isabella Moore, president of the British Chambers of Commerce (BCC) said that the Budget was too optimistic and lamented the low forecasts for manufacturing output.
“Tax revenues are unlikely to increase as rapidly as the chancellor assumes. We are concerned that rapidly worsening finances increase the risk that the government will have to raise taxes in the next two to three years. Any tax rises would be harmful to the economy.
“If tax rises prove unavoidable, it is critically important to avoid at all costs damaging tax increases in the business sector,” she said.
The IoD’s George Cox said: “If GDP growth fails to reach expectations or the tax-yield slips, the chancellor will be forced by his own rules to raise taxation further next year. This remains our continuing concern after today’s Budget.”
The decision to raise capital allowances to 50 per cent was described as “quite welcome” by Peter Pennycard of accountants PKF, while on the simplification of venture capital trusts he said: “The chancellor has finally listened and removed some of the trapdoors to small firms.”
Simon Sweetman of the FSB said that he had campaigned for an increase in capital allowances for a number of years.
“A 50 per cent First Year Capital Allowance is a welcome move but it will not offset the loss to small limited companies as a result of the distributive tax,” he said.
The merger was welcomed for bringing greater clarity to the tax inspection process for small businesses.
Digby Jones said that it should make life easier for small firms, while the IoD said that “We welcome the proposed merger of the Inland Revenue and Customs and Excise, providing these are not just initial savings but give business a genuine one-stop shop.”
