The FPB is responding to claims made in the 2008 Budget speech by Chancellor of the Exchequer, the Rt Hon Alistair Darling MP, that the UK is "one of the best places in the world in which to do business". Research from the FPB suggests that most owners of small businesses disagree. In a recent ballot of members, part of the quarterly Referendum newsletter, 97% of respondents believed that recent tax changes have, in fact, made the UK a worse place in which to do business.
"This Budget is more about what has not been done to help smaller businesses, rather than an announcement of any genuinely proactive and positive measures," said the FPB's Chief Executive, Phil Orford. "While there are some welcome initiatives, they do little, if anything, to offset the tax burden due to be implemented in April. The Chancellor has missed a golden opportunity to convince the small business community that he is on their side."
Mr Darling said his Budget would continue to provide "stability and certainty" for businesses over the coming year, and championed the UK's main rate of corporation tax as being the lowest in the G7. It will be cut from 30% to 28% in April. However, the lower rate paid by many smaller firms is set to rise to 22% by April 2009.
In addition, the Chancellor announced that his plans to remove Capital Gains Tax (CGT) taper relief would still go ahead in April. Although the 10% entrepreneurs' relief will apply for the first £1million of asset sales, the higher rate of 18% will apply thereafter. The FPB is also concerned that the removal of indexation relief, by which CGT calculations were adjusted favourably to take account of inflation, will cause yet more harm.
Measures to sweeten the blow will be negligible compared to the cumulative tax burden that smaller businesses are facing. Delaying the 2% hike in fuel duty until October falls short of the FPB's calls for it to be scrapped altogether, and the previous increase to be reversed.
Despite announcing minor tax incentives and share schemes, the Government still intends to clamp down on ‘income shifting', a long-standing tax break, used in particular by family-run firms, which was deemed lawful by the House of Lords last year. Reducing Capital Allowances for plant and machinery from 25% to 20%, by April, will place an additional burden on the cash flow of many smaller firms.
The FPB welcomes some measures outlined in the 2008 Budget, such as an initiative to enable more smaller firms to procure public contracts, pledging an additional £12.5 million to assist female entrepreneurs start businesses and extra Capital Allowances to help firms introduce more environmentally-friendly commercial vehicles. However, the Chancellor's statements do not back up his desire to "do more to support small and medium-sized enterprises, now and in the future."
"This has done nothing to address the increasing tax burden on smaller businesses, imposed by the 80% rise in CGT, the attack on family-run firms through the proposed rules governing income shifting and the already-announced increase in small firms' corporation tax contributions," said Mike Benson of Murray Smith, a firm of chartered accountants, based in Northwich, Cheshire. "These extra taxes will in no way be offset by minor improvements in share incentive schemes, for example."
