Small business groups reacted with horror to Gordon Brown‘s Budget after he announced plans to increase the tax rate for small companies in three stages from 19p in the pound this year to 22p by 2009.
With his decision to reduce the rate of corporation tax from 30p to 28p and cut the level of income tax by 2p to 20p in the pound, Brown appeared to single out small businesses as the real losers of what is almost certainly his last Budget before taking over as prime minister.
“Small businesses employ 58% of the private sector workforce – over 12m people – and the increase in their tax rate fails to acknowledge their contribution,” said Carol Undy, national chairman at the Federation of Small Businesses. “A cut in income tax is welcome but does not fully offset the dismay felt by small firms despite the other allowances that he has offered.”
Nick Goulding, chief executive of the Forum of Private Business, was also critical of the Budget proposals. “The chancellor has used smoke and mirrors to disguise the fact that there is nothing in this budget to support small businesses,” he said. “In fact, the resulting confusion created by some of his initiatives will serve only to increase the red tape burden.
“The reduction in the main rate of corporation tax will benefit larger firms, not the smaller businesses that make up the majority of the private sector,” added Goulding. “The changes made for smaller firms will serve only to further burden them.”
The FPB also criticised Brown for failing to take the opportunity to reintroduce a 0% rate of corporation tax for the first £10,000 of profits a company makes and for not implementing a more efficient VAT registration system. The VAT registration level, however, was increased to companies turning over £64,000 a year.
Very small firms that have to make substantial investments in capital assets will benefit from a 100% tax allowance on investments of up to £50,000 but the overall picture for small businesses is dominated by the increase in corporation tax, fuel duty – which will rise by 2p a litre from September – and carbon emissions.
The Budget also promised financial help for small businesses offering staff training and an increase in the amount of money that would be spent on education.