Budget 09: business dismisses ‘trivial’ Budget

Efforts announced in the Budget to relieve pressure on struggling small businesses have been labelled ‘trivial’.

Experts dubbed the doubling of capital allowances on investment as a missed opportunity because the crisis means companies have little or no money to invest.

Chancellor Alistair Darling revealed plans to extend the ability of businesses to carry back trading losses against profits from earlier years to November 2010 and double a temporary first-year capital allowance incentive to 40% during the Budget.

But the capital allowance measure, estimated by the government as ploughing £2.2bn back into business between now and 2012, was met with criticism and experts accused Darling of doing little to aid businesses that cannot obtain funding for capital investment.

Bill Dodwell, tax partner at Deloitte, said the sums connected to capital allowances should have been spent making the loss carry-back measures much more beneficial and called the policy’s effects ‘trivial’.

‘We would have preferred to see the so-called cash invested in this to go into loss relief rather than the extra capital allowances which, as you can imagine, isn’t going to help you if you’re losing money.

‘It’s absolutely a smoke and mirrors façade. If you’re an SME, you will be thinking you got nothing of value out of this Budget,’ he said.

At the centre of the Budget was a declaration from the chancellor that the UK economy would return to growth ny the end of this year with GDP rising by 1.25% in 2010. However, the economy will shrink overall in 2009 by 3.5% and public borrowing will rise to £175bn this year and to £173bn in 2010.

Darling also announced a new 50% tax band for those with incomes over £150,000.

Nick Parker, regional director of tax for Tenon, said for SMEs to gain the capital allowance incentive, there has to be investment and the vast majority of businesses are too cash poor to begin spending.

‘Investment just isn’t a priority for SMEs. Loss carry-back, on the other hand, benefits everyone irrespective of whether you’re capital intensive.

‘They could have increased the amount and all they’ve done is extend the ability to claim back a loss a year,’ he said.

According to Stephen Alambritis, spokesman for the Federation of Small Businesses, while the Budget ‘wasn’t hurtful, it wasn’t helpful’.

He said the FSB welcomes the changes to the loss carry-back scheme, but it could have been extended further to November 2010 as outlined.

‘Loads of small businesses are still making losses and we wanted that [loss carry-back] extended until at least the recovery holds. It would’ve been nice to get two or three year chunks of being able to claim back through the loss system,’ he said.

The change to capital allowances, according to Alambritis, is fundamentally aimed at larger businesses and therefore ‘isn’t going to be of much use to tiny businesses’.

Comment:

Alice in Wonderland estimates

Budget 09: It's a confidence game...but the chancellor didn't show

Thanks, Darling, for the British Sarbox