Will the Budget be bad for small business?

The Federation of Small Businesses (FSB) is predicting that Britain’s entrepreneurs will bear the brunt of the Chancellor’s attempts to balance the books in the forthcoming Budget on March 17, 2004.

The FSB, Britain's largest small business organisation, has joined a growing band of professional bodies and advisers who believe that Chancellor Gordon Brown looks set to target entrepreneurs later this month, and has made its concerns known in a submission to the Treasury.

The FSB is concerned that Gordon Brown will:

• Force small companies to pay National Insurance on dividends,
  
• End the tax breaks currently available for investing in IT,
  
• Look at ways of increasing business rates,
  
• Use employers to collect tax from employees on income earned elsewhere,
  
• Tighten up the inspection regime for legitimate businesses without tackling those trading illegally.

FSB Tax Chairman Neil Hamper made the following comments.

On a tax on dividends:

"The Chancellor looks set to change the way he taxes small limited companies. We have not been given any straight answers but Gordon Brown’s options include treating dividends as salary, charging National Insurance on dividends, or imposing an investment income surcharge.

"The FSB has consistently warned that the Government was storing up trouble for itself by creating a tax system where the self employed can pay 32 times more tax than their incorporated counterparts. As a result many sole traders and partnerships have incorporated and the Treasury has been left out of pocket. It is unfair for the Chancellor to now retaliate when this situation was entirely predictable."

On the 100 per cent allowances for investment in IT equipment:

"We are worried that Gordon Brown will scrap the 100 per cent capital allowances on IT equipment at the Budget. There are still a significant minority of business owners who are not computer-literate and who need every encouragement to get their businesses on-line. The current tax break was extended for one year in 2003 and it is essential that the Chancellor gives it a longer life.

"We also want to see a 100 per cent allowance to ensure that all business premises comply with the requirements of the Disability Discrimination Act. There is a strong business case for ensuring that goods and services are accessible to people with disabilities but there are genuine cost implications for small firms too.

On business rates:

"In addition to the hefty contribution businesses make centrally, we are worried that the Chancellor will be tempted to hit firms again, this time through business rates. This would be an attack on the UK’s smallest firms. Rates represent eight per cent of turnover for firms with sales of £50,000 but less than two per cent for businesses with £500,000 sales."

On employers collecting tax from employees on income earned elsewhere:

"Small employers already feel that they administer the government’s social programme and act as unpaid tax collectors. Now Gordon Brown wants to extend PAYE to employees who earn additional income through buy-to-let investments and freelance work. This way the Chancellor gets his money upfront but small employers will be forced to collect tax on income that has nothing to do with them."

On tackling the informal economy:

"Over 350 different types of official inspectors currently enjoy rights of access to business premises. With Gordon Brown scouring the tax system for ways of boosting the tax take, the danger is that the inspection regime will become even more bureaucratic and intrusive for legitimate businesses. What we really need is a general practitioner inspectorate so that businesses receive an initial visit from a generalist, combined with radical measures to combat the illegal traders who have no intention of ever complying with the rules."