Changes in VAT collection have helped raise a smile among dealers
counting the cost of extra National Insurance contributions that
will have to be paid next year when chancellor Gordon Brown's
budget is implemented.
Lack of discretion shown by Customs and Excise in returning VAT
payments has broken many businesses during downturns, prompting
Brown to relieve VAT payments on bad debts and abolish automatic
fines for late payment.
Although the rise in NI contributions will affect all businesses,
Paul Bean, general manager of operations at services reseller
Allied Worldwide, believed the VAT changes could prove vital to
struggling resellers.
"It has to be a good thing. The VAT men are like the Wyatt Earp of
the government and won't leave you alone or even understand any of
the difficulties that small businesses face," he argued.
More than 700,000 firms could benefit from plans to abolish
automatic fines on late payments and VAT relief on bad debts.
Industry associations claimed the budget's introduction of a
research and development tax credit at a net rate of 7.5 per cent
was a step in the right direction in providing an extra incentive
for world-leading technology companies to focus their R&D
activities in the UK.
The Computer Software and Services Association and the Federation
of the Electronics Industry welcomed the range of measures designed
to encourage small business growth. In particular, they highlighted
the reforms of the VAT scheme applying to SMEs and the taxation of
intellectual property.
CSSA director general John Higgins commented: "While we would have
liked an extension to the current three-year scheme which allows
SMEs to write off the purchase of IT equipment, we believe this
budget provides a positive basis for future reform."
FEI director general Anthony Parish said: "The industry needs an
R&D tax credit rate that provides a real incentive to base
research and development activities here - and a net rate of 7.5
per cent represents a sound basis for future growth in this
area."
But Peter White, chairman of Hawke Systems, believed the NI
increases proposed by the chancellor would bite the hardest. He
argued that while everyone had been expecting an increase in NI
contributions to fund the NHS, it was "a shame [Gordon Brown] had
to put it on business too".
Paul Smart, joint managing director of Crowborough-based reseller
Compatibility, agreed. "The increase in National Insurance will put
our wage bill up considerably. Margins are tight enough as it is.
[We sell to SMEs and] they have got a lot of knowledge about prices
now, so we are struggling," he revealed.
Smart admitted the change in corporation tax was a step in the
right direction, but said it was not enough to offset the increased
wage bill.
"It does not really do anything for UK business. It will be better
for big businesses coming into the UK, because they will get their
R&D paid for," he stressed.
Smart was also sceptical about Brown's measures to provide SME
training funds. "It's a lot of hot air. Actually trying to get your
hands on that money is a different kettle of fish," he
complained.
"We have training needs because Microsoft keeps changing its
products, but unless someone knocks on the door with a bag of
money, SMEs cannot get their hands on it," he added.
Bytes Technology Group managing director Neil Murphy suggested the
increase in employer NI payments would affect the company's bottom
line by about £70,000 a year.
"That could be one, two or three extra employees - but at least we
have a year to plan," he commented.
Bob Jones, managing director of Equiinet, criticised the failure to
apply the R&D tax credit to small firms.
"Innovation comes from small knowledge-based businesses, not huge
unwieldy conglomerates with massive budgets," he said.
"This legislation means the likes of BT will get richer, while
smaller companies lose out. The chancellor should extend these
credits to smaller companies if he wants to create a nation of
successful, advanced businesses, irrespective of size," he
added.
Measures for small firms- Automatic relief for VAT on bad debts for small companies
- Plan to extend flat rate VAT to more small firms from next
April
- Small companies will see an immediate corporation tax rate cut
from 20p to 19p
- Corporation tax starting rate cut from 10p to zero for small
firms with profits of less than £10,000
- Extra £30m for small companies' training needs
- New cash to help small firms get online, including the filing
of tax returns
Budget highlights- Firms face increased National Insurance contributions on
earnings above £4,615
- Capital gains tax to be cut to ten per cent for business assets
held for one year or more
- New R&D tax credit for large firms set at 25 per cent
- Freeze on road tax with a reduction for the least polluting
cars, vans and motorbikes
- Freeze on petrol duty