Brown's Budget sends out lifeline to entrepreneurs

Gordon Brown yesterday cemented his reputation as a prudent Chancellor by delivering a tight-fisted Budget, containing just a small number of limited tax treats for voters.

In a blatant piece of political engineering, the Chancellor focused his ninth Budget on the elderly, low-income families and youngsters eyeing the property market.

He issued no tax rises, sweeteners or 'giveaways' for UK professionals, but instead said it was right that Britain chooses the prudent path to lock in economic stability.

He did however vow to legislate recommendations from the Better Regulation Taskforce, which aims to lift the regulatory burden on entrepreneurs by implementing a 'one in, one out' rule system.

Carol Undy, chairman of the Federation of Small Businesses, said adopting a lighter regime for Government imposed regulation is a positive step for the small business sector.

"The Better Regulation Taskforce report is certainly radical. A more systematic assessment of the administrative cost of regulation should replace the assumptions that are made at present. A "one-in-one-out approach" may bring about a much-needed cultural change within the civil service and a commitment to tackle "gold plating" is welcome.

"But whether or not the report will result in "fundamental change" and "a red tape revolution" awaits to be seen. Businesses are cynical because of past broken promises - 30 reports, seven white papers and two acts of parliament during the last 20 years alone."

The FSB also welcomed in the Chancellor's decision to legislate the recommendation from the Philip Hampton Review, which promises lighter inspection regimes for smaller firms fitting into the 'lowest-risk category.'

"The Hampton report is encouraging," said Ms Undy. "There are currently over 300 different kinds of inspections carrying a right of entry into business premises and the whole army of inspectors desperately needs to be rationalised.

"Every single inspection interrupts day-to-day business. Hardworking business owners must be able to concentrate on what they are good at - job creation and wealth generation."

But SJD Accountancy told Freelance UK that the definitions of 'highest risk' and 'lowest risk' could cause extra problems for freelancers.

"Moving away from investigating lowest risk businesses and focusing on highest–risk businesses sounds good in essence. But for freelancers this could have an adverse affect if the Revenue defines IR35 for freelancers as a "highest-risk business” because it is so uncertain. So this could mean that freelance or contract professionals face more investigations than they do today."

UK Tax Relief said they shared concerns that freelancers could be in line for a more aggressive investigation regime.

"I think this definition of 'high risk firms' definitely will entail IR35 and that the number of inspections and investigations is likely to continue its increase," said Ms Wong.

"Powers of entry and investigation powers are without a doubt more frequent, and while the Special Compliance Office is looking at becoming more user-friendly, the amount of prosecutions is rising for those people who evade tax rather than avoid it."

Meanwhile, the PCG, which represents UK freelancers, said that they supported lighter inspection regimes, but were disappointed that the Chancellor "missed the opportunity" for tax simplification.

Dr Simon Juden said: "We welcome the Chancellor's commitment to a 'light and limited' touch for small businesses, share his view of the importance of technology and skills and are pleased that inspections and regulations will be slimmed down, but are disappointed that the Chancellor's missed the opportunity of creating a fairer tax regime for freelancers and small businesses."

He said that the Budget should have also addressed the uncertainty for freelancers caused by ambiguous and restrictive tax rules like IR35 and S660A.

"Those caught by IR35 cannot claim training against their tax, unlike the consultancies they're competing against. IR35 makes self-assessment virtually impossible, which seems to contradict the Chancellor's pledge to enhance small business support."

But SJD Accountancy said the small print of the Chancellor's ninth Budget Report reveals an uncertain future for IR35.

"The Government has said that legal form for businesses should be decided by commercial reasons and not tax reasons.

"What that means, in practice, is that Directors of one-man limited companies are likely to end up paying the same amount of tax as the self-employed. Combined with the government bid to get all self-employed people paying the same amount of tax - regardless of structure - the most obvious leveller would be to bring Ltd companies in line with their self-employed counterparts so that everyone pays the same amount of tax, meaning it would be ludicrous for IR35 to remain."

Furthermore, entrepreneurs have been told by the Government that a new, simplified tax system under the merged Inland Revenue and Customs & Excise will benefit small businesses by enabling one yearly tax return to replace all current tax filing commitments.

The Government said small firms will soon "enjoy a single point of contact with the new department for all their tax affairs, spend less time dealing with inspection and provide information only once." There are also so-called 'flexible payment options.'

Tax Relief said such a system would play into the hands of the Government and the Treasury, far more than any obvious benefits would reach freelancers or contracted professionals.

SJD said they believe the regime would tackle the uncertainty of tax for freelancers and small businesses, who would feel less pressured about IR35 and yearly tax commitments.

But Carol Undy, group chairman of the Federation of Small Businesses, said entrepreneurs would welcome any move to simplify the current regime.

"Hardworking business owners will welcome the introduction of a range of flexible payment options for tax bills and we call for them to be implemented immediately," she said.

Meanwhile those firms considered 'tech intensive' will also be eligible for a guaranteed £100 million share of public sector research contracts, suggesting the Government will outsource work carried out by employees to individual companies.

Brown included other enterprise measures, such as widening the Research & Development tax credit for the mid–sized research company – typically employing over 50 members of staff.

He also said to "enhance small business support" there will be an extension of entrepreneur scholarships, combined with enterprise education for every pupil by 2006.

For individual sectors, the creative industries received renewed financial support, given the Secretary for Culture's bid to deliver £12m to the Arts Council and supporting bodies.

While the British film industry, which has experienced a torrid time recently with uncertain tax implications, was given fresh tax relief for both low budget and larger budget films.

Despite the carefully targeted tax breaks, Brown's critics said yesterday he could have done more to help the UK entrepreneur offset the challenges from Britain's major industrial competitors.

"I would have liked to have seen the kind of incentives enjoyed by small firms in the United States," said Angela Wong of Tax Relief.

"Over there, businesses that make inward investment into research development and capital planning are in line for very substantial tax breaks. So if they work towards generating more income & employment they can win favourable tax breaks, and we have never made one single step towards emulating their system. So where the US has a proven system that works for business and the economy, then why don't we copy it?"

She told Freelance UK that much of the lacklustre performance of the Chancellor was down to his political, fiscal and personal position in Government.

"Brown's situation is a difficult one - what he has to do is strike a balance fiscally, politically and personally for his reputation - he has had a virtually impossible task because he is trying to please everybody," said Ms Wong.

"[However] there is a huge gulf between people like Gordon Brown, who work for the Government and freelancers and small businesses.

"Brown & his cronies don't understand what it's really like to run an enterprise or be self-employed because they have never done it. I think Brown & his team ought to sit and work with contractors, self-employed people and small business and see what it is actually like. Reason being; they have no concept of what it's like to be a freelancer or entrepreneur, where it is essential you hunt out opportunities and then deliver services."

The politically motivated of yesterday's Budget featured strongly in SJD Accountancy's verdict on the role of Brown and electorate.

"His tax treats are well targeted and feed positively into the traditional Labour voter – such as the OAPs, lower income families and others," said Simon Dolan, managing partner at the firm.

"But it is a fairly cautious Budget overall, especially as the General Election is expected in less than 50 days. Perhaps we could expect to see more sweeteners – but people are savvy these days as to pre election tax treats and the Chancellor appears to have gone the other route, avoiding the obvious so he appears trustworthy."

No Longer Limited, the IR35 specialist, supported the idea of the Budget as a well-targeted message to certain groups of the electorate.

They told FUK :"Brown read a budget yesterday written for the working family on low incomes, the elderly and increased most allowances including tax credits. More specifically he underlined the Government's position on tax avoidance and other legislative changes in the PBR."

Some small to medium-sized firms should also note that the enforcement of the minimum wage continues, as does the Government’s position on tax avoidance, which has now been extended to clampdown on even more financial schemes.

Perhaps the most positive unveiling was the raise of the stamp duty threshold to £120,000.

One advisor told FUK that such a measure was long overdue but the government would take credit for the stamp duty increase, rather than acknowledge the delay in delivery.

Tax and legal expert Egos told FUK: "Yes this was a missed opportunity for enterprise, but its not very surprising given the fiscal and political situation. It all appears pretty innocuous – it is a series of veiled threats, rapped in a velvet glove of things to come."


17th March 2005

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