Darling delays CGT treat for business

Alistair Darling has plunged thousands of small firms into the “worst of all worlds” by deciding relief to his new capital gains tax rules will not be unveiled before Christmas.

The chancellor‘s announcement means it will be at least another three weeks until owners can be certain how much tax a sale of their company would attract.

Under current proposals, business assets held for two years would no longer be eligible for a 10% tax take, but would attract a take of 18% from April next year.

But outrage from all of the UK’s small business groups has forced Whitehall whispers of a concession , which may see business owners who retire exempt for the first £100,000.

Whatever its final content, the concession will not be unveiled until the New Year, reinforcing fears that the market will suffer from distortions, as experts warned last month .

Moreover, a stampede of business owners who choose retirement after sale just to avoid higher tax bills would leave considerably less money-makers in the economy.

“We are now in the worst of all worlds,” said Tenon, the private business advisor, responding to Mr Darling’s statement to the House of Commons on Thursday.

“The implication of the announcement is that some changes will be made, but businesses and their owners will remain in the dark about what they might be for several weeks.”

Richard Lambert, director-general of the CBI, said that at the least, the delay shows the chancellor is “paying attention” to small business concerns.

“But he needs to get on with this decision urgently,” Mr Lambert said of the chancellor.

“People need to be able to make decisions about their businesses - whether to invest, or whether to sell up. This uncertainty mustn't be allowed to continue.”

Yet one leading tax expert believes the delay, in isolation, is not the main cause of the headache company owners are suffering, and will continue to suffer from over Christmas.

“The whole exercise has been conducted the wrong way round,” said Andrew Hubbard, vice chairman of the Chartered Institute of Taxation.

“We should have had consultation first with proposals to follow. Instead of this we had proposals with no prior consultation. The government has now got itself boxed in.”

The CIOT believes any changes to CGT will be seen as a “climb down” rather than a “sensible measured response” to proper consultation.

They want all reform to capital gains tax to be shelved until April 2009, to allow a consultation on the proposals, during which time entrepreneurs could get their affairs in order.

"This will [also] enable entrepreneurs to...make decisions for commercial reasons instead of solely for tax reasons," the CIOT said.

It is also “not credible”, Mr Hubbard said, to package up such a wide range of tax changes into a matter of weeks, as Mr Darling proposes.

To ensure a fair deal for smaller businesses, one enterprise lobbyist has submitted its own CGT proposals, keeping in mind the government’s intention of simplifying the system.

“The Chancellor appears to be taking our opposition to the PBR and our proposals for changes to it seriously,” said the Federation of Small Businesses.

But John Wright, its national chairman, tempered the optimism, saying: “We are still no clearer on what will happen with the tax arrangements for millions of small business owners and entrepreneurs come April next year.”

Of the prolonged tax uncertainty facing small firms, he added: “This is not a good situation to be in and one that we had hoped would all be resolved by now.”

Meanwhile, some political commentators have told the Financial Times they regard Mr Darling’s “dithering” as being totemic of wider problems with Gordon Brown’s government.

Last week a poll by ComRes found the number of business captains who say they are “not confident” in Mr Brown has leapt from a low in October of 64% to a new high this month of 73%.

Faith in the chancellor’s ability to manage the economy has also sunk, from 76% in October and 77% last month saying they were “not confident” in his economic management, to a new high this month of 83%.

But the poll suggests mutterings of CGT relief for retiring business owners have calmed the storm, as just 59% currently think the proposal will damage enterprise, compared to 69% last month.

 

17th December 2007

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