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Pre-Budget Report Lets Down Small Businesses, say MGI

BThe UK and Ireland arm of global accountancy association MGI says Chancellor Alistair Darling’s Pre-Budget Report has failed to deliver real benefits to small and medium-sized enterprises (SMEs).

Presenting his report on 24 November, Mr Darling said he would do “whatever it takes” to help families and businesses through an unprecedented global economic crisis. Measures to assist businesses included deferring until 2010-2011 a planned 1% increase in the small companies’ rate of corporation tax, which will remain at 21% during 2009-2010.

Elsewhere, for a 12-month period from 24 November 2008, businesses will be able to carry back trading losses of up to £50,000 over a three-year period rather than one year. This allows loss-making businesses to reduce their taxable profits for those three years, leading to a repayment of corporation tax to help improve cash flow.

However, Mr Darling also announced that employers, employees and the self-employed will be hit by a 0.5% increase in national insurance rates from April 2011.

Keith Bell, tax partner at MGI UK and Ireland member firm Rickard Keen LLP, said that the Pre-Budget Report had failed to deliver all the help that SMEs had been seeking and warned that Mr Darling had created future challenges for the sector, including those presented by the complex capital allowance regime that provides tax relief on investment by businesses in plant and machinery.

He said: “While the deferral of the proposed corporation tax rate increase is welcome, the only other positive move is to allow losses of up to £50,000 to be carried back over a three-year period rather than just for one year. This will benefit companies that are in a loss-making situation but does nothing for those who are continuing to trade profitably, albeit with reduced profit levels.

“In the meantime, businesses will have to digest a whole new raft of legislation amending the ways that capital allowances on business assets for the current accounting year are claimed. Inevitably there will be winners and losers with this new regime, depending on whether the business is able to commit funds to reinvestment in plant and machinery.

“Further changes to the capital allowances regime for company cars will now be introduced from April 2009. It is likely that most SMEs will see an increase in their tax liabilities due to the reduction in capital allowances becoming available.

“Problems will also come further down the line when the national insurance rates for employers rise by 0.5% from April 2011.”

MGI is a worldwide association of independent auditing, accounting and consulting firms. Established in 1947, it has more than 260 member firms, including eight in the UK and Ireland, in 77 countries

For more information, visit www.mgi-uk.com www.mgi-uk.com