SMEs count the cost of tax hikes

Businesses were counting the varying costs of a perplexing Budget this week,
as the chancellor slashed the corporation tax rate for big business but hiked it
for small businesses.

On top of that, the range of reliefs available to different groups were
revamped, creating further complications.

The small business tax rate rose to 22% from 19%, raising £800m by 2010. And
following loud and persistent calls from big business organisations, the
chancellor moved to slash the top rate of corporation tax from 30% to 28%,
creating the impression that big business lobbying had won out over lesser
pressure from the small business community. The Treasury will still rise £50bn
in corporation tax in 2007/08.

‘This is pretty disappointing,’ a spokesman for the Federation of Small
Business said.

‘This is something that we didn’t expect at all. Given that small businesses
employ 50% of the UK workforce and generate half of the gross domestic product,
it doesn’t make a lot of sense.’

Small businesses were handed a new annual investment allowance for spending
on plant and machinery of up to £50,000, but advisers indicated many would not
take it up.

Patrick Stevens, tax partner at Ernst & Young, said: ‘If small business
wants to take any advantage of the chancellor’s generosity they will have to
invest £50,000 under the new Annual Investment Allowance. If they don’t they’ll
probably end up paying more tax, as the small companies rate rises to 22%.’

Slicing the corporation tax rate by 2p to 28p in the pound in April 2008 will
cost the government £1.3bn in 2008/09 and £2.2bn in 2009/10, according to
Treasury figures. The cut follows intense lobbying by the CBI and other groups.

The chancellor clawed back a further £1.5bn from companies by reducing
capital allowances on plant and machinery.

‘Cutting the headline rate to 28% will create good publicity, but the capital
allowances changes mean that ultimately it amounts to nothing more than window
dressing,’ said Chiltern corporate tax director Kevin Hindley.

The headline tax rate cut would do little to improve the competitiveness of
the UK tax system said Richard Collier-Keywood, UK head of tax at

‘If you take into account the capital allowances changes the UK isn’t a lot
more attractive from a tax point of view,’ he said.


Corporation tax rate, from its previous 30%level

Money raised in 2008 from rise in small company tax rate

Tax raised from changes to empty property relief

Brown slammed for notes overload

Gordon Brown pledged to simplify the UK tax system – while delivering the
biggest Budget to date, writes Gavin Hinks.

This year’s reorganisation of government finances ran to 81 sets of notes on
the HM Revenue & Customs website – the largest number since the chancellor
took office. Last year saw a sharp increase to 64 notes while the lowest number
was in 2002 with 26.

Adam Bainbridge, head of corporate tax at KPMG, said: ‘Here’s business
screaming for decluttering and HMRC having done a project on the administrative
burden of the tax system – but here we are with 81 notes.’ The number of notes
for the Budget have been as low as 26 in 2002, but climbed to 64 in 2006.

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