Small businesses and the self-employed have been warned that they are facing “potentially devastating” tax rises in this year’s Budget, according to freelancer organisation The Professional Contractors Group (PCG).

The PCG said it was concerned about a section of chancellor Gordon Brown’s pre-Budget report in December, which hinted that a stricter tax regime on the profits of small firms would be introduced this year.

Paragraph 5.91 of the report said that the government will “bring forward specific proposals for action in the Budget 2004 to ensure that the right amount of tax is paid by owner-managers of small incorporated businesses on the profits extracted from their company.”

The PCG said that it was “eagerly seeking clarification” as to what the proposals will mean for startups over the coming year, claiming that any tax rises will prove disastrous for many companies.

As reported by Startups.co.uk, the chancellor’s pre-Budget announcement was warmly welcomed by most business groups, mainly due to plans to plug the gap in public spending with higher borrowing, rather than raising company taxes.

However, there remains concern that the government, which has been repeatedly accused of over-regulating and over-taxing businesses, will be tempted to extract even more money from companies in order to meet spending promises on public services.

Business groups and the Conservatives have accused Brown of getting his sums wrong and bad growth predictions, leaving a hole in his spending plans that may be filled by extra business taxes.

Ian Durrant, of the PCG, said that he was extremely concerned at how the proposals may be implemented and the potentially devastating effect on the freelance and small business community.

“The government seems to have come up with this idea without any prior consultation or impact assessment.

“We believe this could be one of the most significant tax proposals for years, and therefore we urgently need a period of consultation, representation and clarification before 5.91 is implemented.

“This is a tax time bomb that’s started ticking and many will be wondering whether they’ll still be in business in a year’s time if 5.91 is introduced in the budget this April,” he said.