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The positive impact of tax breaks and support for small and medium-sized enterprises (SMEs) announced in today’s Budget will be short-lived if the proposed increases to National Insurance contributions (NICs) go ahead as planned next year, experts have warned.
The Chancellor this afternoon launched a series of measures including the doubling to £100,000 of the annual investment allowance for small firms, and a new growth capital fund for fast-growing businesses. HMRC’s Time to Pay scheme will be extended for the whole of the next parliament, and the threshold limit for entrepreneurs’ relief has been doubled to £2 million.
Alistair Darling also promised that the UK’s computer games industry will benefit from tax advantages similar to the ones enjoyed by the country’s movies sector, and 15% more government contract schemes will go to SMEs.
Such announcements were ‘clearly politically motivated and designed to neutralise the opposition parties’ appeals to SMEs,’ said Lisa Macpherson, national director of tax at PKF.
‘However, they will only offer a short-term boost to growing businesses. For example, the reduction in business rates is valuable, but only lasts for one year. The real worry is that any financial advantage will be more than wiped out by increases in NICs in 2011/12.’
Ms Macpherson said the enhanced capital allowances for small firms will be well received by firms looking to invest, but she added a note of caution: ‘Businesses who do have sufficient funds to invest may be tempted to take the plunge and claim the higher annual investment allowance.
‘However, those who have significant numbers of employees may just want to hang on to their cash to cushion the blow of the NIC increases.’
Graham Farquhar, Ernst & Young employment tax partner, echoed Ms Macpherson’s sentiments by claiming that by forging on with the increase in National Insurance, the Chancellor is ‘ignoring the concerns of business organisations about its effect on both employees and employers.
Mr Farquhar added: ‘Given that the impact will not be felt for over 12 months, a future Chancellor may reconsider the choice between NICs… [and] another option, such as the much-forecasted increase of VAT to 20%.’
Chris Lee, partner at accountants James Cowper, was similarly cynical: ‘The measures announced to help small businesses… are all welcome and will undoubtedly help businesses – but they are all overshadowed by the planned hike in National Insurance rates… which affects all businesses and is, quite simply, a tax on jobs.’
