Businesses will receive more than £680 million worth of tax relief from the Chancellor over the next three years, but almost £1.4 billion worth of new taxes will eat away at any gains they might have made.

Despite fierce criticism over recent months, Alistair Darling refused to back down on his new flat rate of capital gains tax, which he said would be introduced next month as planned. The rate for most businesses will rise from 10 per cent to 18 per cent, although falls in the value of property and other assets means that the Exchequer will make £1 billion from the new taxes over the next three years, rather than the £2 billion that it had predicted originally.

The so-called entrepreneurs’ relief, in which people with stakes in small businesses can keep their 10 per cent relief on capital gains of up to £1 million over a lifetime, will cost the Chancellor £600 million over the next three years. Chris Sanger, head of tax policy at Ernst & Young, said that the £1 million limit would deter entrepreneurs “at a time when the UK needs to be encouraging greater entrepreneurism”.

Accountants were also highly critical of a cut in the corporation tax rate from 30 per cent to 28 per cent, which comes into force next month. The Chancellor said that Labour’s third reduction in the tax on companies’ profits meant that Britain had the lowest rate in the G7 group of countries.

Rose-tinted specs fail to offer hope

The obvious justification for Mr Darling’s relatively upbeat scenario is that the outlook is fraught with uncertainty

Background

• Darling's first Budget: the main points

• The Chancellor's speech in full

• Darlings first Budget: the reaction

• Chancellor hits the home budget as his debts soar

• Need to know: Budget 2008

The Chancellor delivers a modest Budget

As so often is the case, virtue, in terms of improving public finances, is not now, but at least a year away

Multimedia

• Video sketch: Matthew Parris and Ann Treneman

• Eco-worrier: should we be pleased?

• Green Central: round-up of the green Budget measures

Multimedia

• Red Box: a list of Darling's new enemies

• The winners and losers

• Video: the 'fingers crossed' budget

Accountants said, however, that the rate reduction had already been announced in last year’s Budget. They added that Britain’s corporation tax income from companies was higher than any country except Japan and Canada because the Chancellor offered businesses far fewer opportunities for deductions and deferrals.

Bill Dodwell, tax partner at Deloitte, the accountancy firm, said: “Businesses are worried at the rate at which things are taxed but also on what they are taxed. They are taxed on far more items than in other countries.”

Mr Darling announced a £60 million increase for the Small Firms Loan Guarantee scheme, which helps small businesses to borrow more cheaply. Under changes to the Enterprise Investment Scheme, investors in start-up companies will be able to put up to £500,000 in and obtain tax relief of 20 per cent. The decision to raise the investment limit from £400,000 will cost the Exchequer £10 million over three years.

Mr Darling hopes to make £105 million from the use of company cars, including a higher tax from next month on the private use of business vehicles that emit heavy carbon dioxide.

He promised to delay a crackdown on income splitting — in which family members working for a company transfer income from one member to another in order to reduce the family’s total tax payment — until April 2009. The Treasury planned to force families to spell out each members’ exact contribution to the business, but the Chancellor said yesterday that he would consult further. Alex Henderson, a partner at PricewaterhouseCoopers, said: “People will be breathing a sigh of relief over this.”

The drive to increase the numbers of women in small business will be led by a £12.5 million injection into a capital fund investing in women-led businesses.

Pam Alexander, co-chairman of the Women’s Enterprise Task Force, said: “We know that women-owned businesses, on average, utilise only half to a third of the investment capital that male-owned businesses use to fund their businesses.”

John Hutton, business and enterprise secretary, said: “The UK’s long-term prosperity lies in unlocking the talent of enterprise for people from all sections of society and in our small businesses, helping them to grow.”

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