Budget blow for business

Chancellor Gordon Brown made it appear that businesses, self employed and families have been helped but there is speculation that it could all be smoke and mirrors.

He announced an increase in small companies corporation tax to reduce the advantage that companies have over the self employed.

He raised the small companies rate in three stages from 20p this year to 22p and plans to "recycle all these revenues" to legitimate businesses. Small firms will be able to claim the new 100 per cent relief for new capital investment up to £50,000 and a £175 per cent tax credit for Research and Redevelopment as well as a new healthy tax credit for environmental investment.

Businesses fighting hefty competition abroad were even handed a lifeline through the reduction in mainstream corporation tax from April 2008 from 30p to 28p - a rate lower than America, Germany, France, Japan and all major competitors. He claimed the tax rate was lower than all the major economies.

But Interim Finance director Mike Agate who runs Agate Associates Accountancy in Blind Lane, Bourne End was critical saying: "Things are not always what they seem with this Chancellor. Far from being a bonus, the vast majority of companies will pay more corporation tax because the rate for small companies is going up from 19 per cent to 22 per cent.

Although the Chancellor says there will be hundred per cent capital allowances up to £50,000, this will not start until 2008 although the increases in corporation tax commence in 2007. The conditions of this apparent give away are yet to be finalised and the Chancellor is also reducing some other capital allowances."

Mr Agate will present a Budget Report to the Chiltern Branch of the Chartered Institute of Management Accountants soon. It will take him time to examine the finer details because the basic document is 190 pages and there are a few hundred more, supplementary pages.

"The devil is always in the detail with Brown's budgets and I will be examining it carefully this afternoon to find out the things the Chancellor didn't want us to know from the dispatch box," he added.

Partners at Seymour Taylor Accountancy in London Road, High Wycombe crowded round the television watching the lunchtime announcement and will also study the small print.

Partner Simon Turner said: As always with Mr Brown's Budgets we will have to wait to look at the fine details to really see how it will effect us all."

He added , "For business his big announcement was the reduction in the UK Corporation tax rate from 30 per cent to 28 per cent from April 2008 which is likely to cost up to £3 billion. At the same time, the small companies tax rate will rise in stages to 22%. This will effect the majority of our clients who are SME's Capital allowances will be reformed, with a new 20 per rate (down from 25%) and a new 10% rate for long life assets (up from 6 per cent). It sounds as though the capital allowance changes will at least partly finance the rate reduction.

Income tax and national insurance thresholds are set to be aligned from 2009, with a threshold for the 40 per cent rate of £43,000. The existing 10 per cent rate may be abolished. Basic rate of tax will be reduced from 22 per cent to 20 per cent from 2008 - which was a big surprise.

Newly appointed Partner Adam Stronach from Harwood Hutton in Wycombe End, Beaconsfield agreed the Budget was bad news for small business.

"If your company earns profits above £1.5m there is some joy for you, but for small companies with profits of less than £300,000, the phased increase is going to be costly. Data from H M Treasury suggests that by 2009/10, there will be £820m extra tax arising from the phased increase in the small companies rate."

The biggest surprise came at the end of his speech - a cut in basic rate of income tax from 22p to 20p - the lowest basic rate for 75 years. The downside is that much of this will be funded by the abolition of the 10 per cent tax band. This could be regarded as a vote catcher.

As predicted, gas guzzling cars have come under fire but Browns green inititiative has gone further by introducing lower bands of tax for low emission cars and companies which have green initiatives.

This will be good news for companies such as Monodraught on the Cressex Business Park in High Wycombe which has pioneered environmentally friendly products which rely on the power of nature. We report on that exciting busiunes in next week's Business Monthly.

But the Chancellor also scrapped the 10p lower rate, which critics say means most people will not be better off.

Budget Highlights

2p off basic rate of income tax

10p starter rate abolished

2p cut in corporation tax

Gas guzzling car duty up to £300 this year and £400 next

Beer and cider up 1p, wine 5p, spirits duty frozen

11p on cigarettes

2p petrol increase frozen for six months

Family friendly initiaves were

Child benefit increased to £20 for first child

Tax Credit working tax credit value rises

Inheritance tax allowance up