Press Release

Tax reform shows Government fails to understand business, says FSB

The Federation of Small Businesses (FSB) has responded to a Government consultation on tax changes in this year’s Budget by saying that the new regime demonstrates a lack of understanding in Westminster of small businesses.

The consultation, which closes today, looked at the increase in corporation tax – from 19% to 22% - and new capital investment tax allowances for small businesses that were announced in March by the then-Chancellor, Gordon Brown.

The FSB believes that the tax allowances in no way off-set the corporation tax increase because to get the full benefit from them would require investment year-on-year of £50,000.  For forty per cent of FSB members £50,000 is fifty per cent of their annual turnover.  For two thirds of small businesses £50,000 would be twenty per cent of annual turnover.  For small businesses this is not a realistic level of investment.  The allowances also require a lengthy form-filling exercise to claim, which was not the case with a lower rate of corporation tax.

Bill Knox, FSB Tax Chairman, said:

“Small businesses continue to feel let down by the Government with regard to tax.  Increasing the corporation tax on small businesses by three percentage points, while reducing it for large firms, was a kick in the teeth.

“Complicated tax allowances, with their bureaucratic processes and unrealistic spending thresholds have in no way made up for that tax hike.  A local hairdresser is not going to spend £50,000 per year on hairdryers but will be subject to higher taxes.

“On top of the draconian change in capital gains tax announced in the Pre-Budget Report, these changes clearly demonstrate that the Government does not understand the needs of entrepreneurs.  A seismic shift in the approach taken to small firms by the Government is needed in next year’s Budget to redress the balance.”