Darling’s bombshell has dropped, and the consensus is that small businesses have little to be happy about.

Commentators were expecting the Budget to be stiff, but tax rises and cuts will still hurt.

The Budget speech did include some hope for loss-making businesses, however, with an extension of the timeframe that allows businesses to reclaim tax against losses.

Originally flagged in last year’s pre-Budget report, the measure meant as much as £50,000 of losses could be ‘carried back’ from the previous year.

The chancellor has now extended the timeframe from one to three years. However, the £50,000 limit remains in place.

“I think that businesses were hoping for a lot more,” said Tim Lyford, a tax specialist at Smith and Williamson. “I think the chancellor showed a lack of ingenuity in today’s Budget, for instance keeping the £50,000 limit.”

Other areas designed to help businesses included an increase in first year capital allowances from 20% to 40%. The measure was broadly welcomed by analysts who considered it a good way to encourage spending, but concern was expressed that it would do little to solve cashflow issues.

“The temporary increase in the first year allowance from 20% to 40% should encourage businesses to invest over the next year and is a step in the right direction. Cashflow is likely to be a greater problem though,” said Frank Haskew, of the Institute of Chartered Accountants

The chancellor also unveiled a new £750m strategic investment fund to support emerging technologies, advanced manufacturing digital and biotechnology.

“[The fund] will encourage exports, support inward investment, promote research and development and harness commercially our world-class science base,” said Darling.
The chancellor’s economic plans – which he dubbed the “world’s first ever carbon budget” – include a commitment to cut UK emissions by 34% by 2020.

The headlines, however, are likely to focus on the decision to raise the rate of income tax to 50% for those earning above £150,000.

“There’s certainly a risk that it will be disincentive but the government has to make money. I think it will probably mean that some will look for ways to shelter their income,” said Lyford.

He added that while it was possible to move income across into areas where it would accrue less tax, such as capital gains (18%), the government had made it much harder to disguise income.

© Crimson Business Ltd. 2009