Budget's effect on small business

Five months after the 2004 Budget, a survey has shown that one in five small businesses are suffering from its effects, despite claims that it was designed for business.

The survey from accountants, Tenon, shows that 19 per cent of businesses with a turnover of up to £1 million say it has had a negative effect on their business and more than two-thirds of businesses say the new introductions by the Chancellor have made little difference, while just seven per cent of the 500 businesses polled across England and Wales said the Budget had a positive effect for them.

Andrew Hubbard, Director of Taxation at Tenon said: "The long-awaited attack on the tax advantages of small companies was launched this March. Although it didn't appear to be as bad as we had initially anticipated, this could be one reason why small businesses are speaking out against the Budget, as it has affected thousands of small enterprises across the country. To make matters worse, small businesses also still have to deal with the IR35 and Section 660A rules.

"We are surprised that the imposition of a 19 per cent rate on distributed profits has not had an even more negative impact on the very smallest companies. These businesses, earning profits of less than £50,000 were affected by this and have either disincorporated or have faced further steep tax rises."

Industries that feel most afflicted by the Budget include the motor trade and transport and production with 30 per cent and 25 per cent of respondents respectively claiming the Budget has had a negative effect on their business. Construction is the most optimistic sector, with 10% of businesses believing the Budget has worked for them.

Overall the survey shows that the Budget has impacted worst on companies with a turnover of between £250,000 to £500,000, with almost a third (32 per cent) claiming it has affected them negatively, compared to 18 per cent of businesses with a turnover of £500,000 to £1m, and 14 per cent of businesses with a turnover of £101,000-£250,000.