The Budget – a small business view

by Rosie Beasley

“Today I also want to do more to support Small and Medium Enterprises now and in the longer term. 13 million people work in Small and Medium Enterprises. And there are over 750,000 more firms than in 1997. I believe we can help support them grow their businesses, creating new jobs and opportunities.”

This was the word from Alastair Darling in his first Budget announcement as Chancellor. Yet despite the proposed investment of millions towards “simplifying” tax and administration, enabling better access to finance and encouraging enterprise, it is uncertain whether the majority of small businesses will actually see any benefit.

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Instead, more impact will be felt from the increases in tax and duty, some of which – National Insurance increases, for example - were not highlighted in the Commons speech.

With its heavy focus on environmental taxes the government has alienated those businesses which rely on transportation to operate. Although the expected fuel duty increase has been postponed until October, this will make little difference to businesses which are already facing increased running costs from high petrol prices and now from emissions related tax.

Tony Barker, owner of a joinery business, said: “Tax on 4x4 [is a concern]. No account has been paid to how this will affect farmers and business owners who need these vehicles. The fuel duty is being raised in October with scant regard to how businesses are being affected by high fuel costs.”

As well as increasing the day-to-day running costs of the business, Mr Barker suggests that it will end up being harder to maintain a competitive edge against larger businesses which can more easily absorb any higher taxes. He said: “Quotations for work evolving in the near future are falling foul of increased costs and it is difficult to move ahead in business.”

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In addition to fuel and emissions taxes, small businesses will also face an increase in corporation tax from 2009, which will take the rate up to 22%. The Budget announcement glossed over this and focused on the reduction of main corporation tax to 28%.

Overall there is a general feeling amongst small business owners that the government is not doing enough to support them. Mr Barker gives the following example from his own experience: “CIS tax rules are classing the high ratio of material prices to low site work labour costs as errors [but] when investigated and it is proved that off site costs are high and on site costs are low by proportion, the error disappears but a penalty is still charged. This happens even when no further tax is due. The emphasis is on claiming penalties.”

The upshot for the Labour government is that they will now have an uphill struggle to gain the support of the small business owner when election time comes around in 2009. For the small business owner, the struggle to keep their business alive has already begun.

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This article was first published on Simply Business