SME firms rocked by chancellor's tax rises
Budget plans see corporation tax for small businesses rise to 22 per cent in three years
Smaller channel players appear to have been hit hardest by Gordon Brown’s 11th and possibly final Budget last week.
While corporation tax was cut from 30 per cent to 28 per cent for larger firms, the rate for smaller businesses will increase from 19 per cent to 22 over the next three years.
Carol Undy, Federation of Small Businesses national chairman, said: “Small businesses employ 58 per cent of the private sector workforce – more than twelve million people – and the increase in their tax rate fails to acknowledge their contribution.”
Mike Lawrence, managing director of VAR Bentpenny, said: “This year’s Budget does nothing for smaller resellers like us. Brown harps on about investment in small companies, but then ups the small businesses tax rate. Incentives are needed to encourage people to start up businesses, not put them off.”
However, accountancy firm MacIntyre Hudson highlighted one small glimmer of light for resellers.
Last year the government increased the rate of first-year allowances (FYAs) for small businesses spending on plant and machinery from 40 per cent to 50 per cent for a period of one year. The chancellor extended this for another year in last week’s Budget, although the rate of FYAs for medium-sized firms remained unchanged at 40 per cent.
Victor Dauppe, tax principal at MacIntyre Hudson, said: “It’s good news for VARs because it covers spending on IT equipment so it should encourage small businesses to upgrade.”
However, Derek Walton, finance director at distributor Magirus, remained sceptical. “I appreciate that the 50 per cent rate has been extended for another year for small businesses, but my main worry is that because general capital allowances have been cut from 25 per cent to 20 per cent, it could prevent large-scale IT projects from going ahead,” he said.