Tax hike could cost dearly.

In his Budget statement Gordon Brown announced a one per cent hike in NIC payments for employers up to 12.9%. Pat Billingham, Ernst & Young’s entrepreneurial services tax partner, said: ‘I’m sorry to see that he’s decided to tax jobs with the 1% levy when the recovery is still so fragile.’

Brown was panned by the accountancy and business communities for ‘crippling’ SMEs after announcing his intention to raise the rate of national insurance contributions from next April.

CBI director-general Digby Jones said: ‘We are worried that he is now imposing a business tax burden that impacts directly on the cost of employing people at a time when UK competitiveness is being put to the test.

‘An increase in employers’ NIC’s impacts on every business of every size regardless of whether or not they are making profits.’

Meanwhile, PKF warned the increase in NI could prove crippling to SMEs because it directly hits the employer with extra costs.

The firm said a typical business with 100 employees would have to pay an additional £23,607 a year.

Sheena Sullivan, tax partner at the firm, said: ‘NIC is a tax on jobs and a disincentive to employ which would hit SMEs the hardest.’

But with this exception, the other measurers brought in by the Budget were welcomed as good news for Britain’s small businesses. Brown moved to make starting up a business more attractive by cutting the corporation tax starting rate to zero. Companies making £10,000 or less in profit will not have to pay any corporation tax.

At the same time small businesses – those making between £10,000 and £50,000 – will now pay 19% corporation tax.

Small businesses would also benefit from an optional flat rate VAT scheme, which will allow 500,000 small firms to cut their compliance costs – the changes mean that businesses with a taxable turnover of up to £100,000 will no longer need to keep individual VAT records.

A further change to the VAT regime will allow small businesses to file only one annual return once they are registered for VAT instead of the current requirement of four returns for their first year.

Other measurers were also welcomed. According to Alastair Kendrick, tax director at E&Y, the stamp duty exemption for transfers of goodwill ‘will encourage more people to buy into businesses’.

The move will reduce the tax bill on transfers of businesses putting goodwill on the same footing as intellectual property.

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