With the pre-Budget report supposedly laying the building blocks for a nation of hi-tech entrepreneurs it was unfortunate that within minutes of Gordon Brown finishing his speech last Tuesday, the Treasury website had gone down. 'It was the sheer volume of people all logging on at once,' said a spokeswoman. Let's hope similar enthusiasm doesn't thwart the government's plans to prepare UK plc for the 21st century. The chancellor's pre-Budget statement was generally, though not universally, welcomed by business. Despite being the most obvious beneficiary - if the statement was clearly going to achieve anything in the short term, it was to complicate the tax system - the accountancy profession, however, was more scathing. Among the main points were: a crackdown on capital gains tax evasion through gift relief; a 'tax-advantaged' all-employee share scheme regime; a new tax incentive to encourage UK companies to undertake corporate venturing; and a research and development tax credit for SMEs. There were also: measures to attract overseas IT specialists into the UK; a reduction in the size of the climate-change levy; action against offshore bookmakers to protect the UK betting industry; and a simplified and 'more generous' tax regime for charities. Large and small businesses backed the measures though tempered their praise with caution. Adair Turner, director-general of the Confederation of British Industry, described the Green Budget as 'prudent and business-friendly'. He said the CBI had been seeking a more radical overhaul of CGT focused on investment in SMEs. 'These changes should allow more funds to flow into growth businesses to fill the equity gap,' he said. The CBI also welcomed the improved tax breaks for all-employee share schemes which 'will give employees greater incentives to work towards the success of their companies'. The Federation of Small Businesses said it was pleased about the removal of the fuel duty escalator, but warned that the Budget 'sidelined much of the business community with its other proposals.' Small companies would also be cheered by the promise to crack down on the shadow economy. 'They pay taxes and then down the road they see car-boot sales operating. That drains the life of the small-firms sector,' said the FSB's David Hands. And while the share-ownership plans would help corporate UK 'they won't help the unincorporated sector like sole traders and partnerships. We would have preferred to see tax breaks for owners who invest in their own businesses, rather than for people who invest in other companies.' But for the firms and the accountancy bodies it was a different story. ACCA senior technical officer John Davies said the statement 'provides little stimulus for investment and does nothing to reduce the administrative burden for small businesses.' Frank Haskew, of the English ICA's Tax Faculty, said little more than a year after introducing major changes to the tax system, the chancellor was making further amendments. This was evidence of a need for 'root-and-branch reform as opposed to continuous tinkering with a creaking tax system'. KPMG tax partner Iain Stewart said the Budget hurt smaller businesses - the very group the chancellor was hoping to promote. 'Smaller quoted companies, the key engines for growth, have been largely ignored,' he said. 'His headline-grabbing reference to a cut in capital gains tax only applies to business assets. Smaller quoted companies, which make up 85% of the London Stock Exchange, and contribute almost £10bn in tax revenues, must be given a better market for their shares if they are to survive. 'They are struggling under the weight of the obligations of public ownership with precious few of the benefits and yet again have been largely ignored.' Pannell Kerr Forster tax partner Sheena Sullivan was more positive. 'Brown's heart is in the right place but promising initiatives continue to be stifled by red tape,' she said. 'His proposals for smaller businesses are complicated, and complexity increases the chances of honest taxpayers getting it wrong and less scrupulous taxpayers abusing the system. 'His plans to make capital gains taper relief for business assets more generous, for example, should be welcomed. But why does he not make everyone's lives easier and abolish capital gains tax.' A Budget for business? Well, 'nearly' should probably be the reply. TOYING WITH HYPOTHECATION Moves in the Green Budget to link taxes directly to spending - hypothecation - could turn out to be 'an expensive gimmick,' a tax expert warned. Hypothecation has been resisted in the past but elements of it were introduced in the pre-Budget statement, with a promise that revenue raised from future taxes on tobacco would go straight to the health service. Initially a 5% rise in tobacco taxes would go towards fighting smoking-related diseases. Anne Redston, Ernst & Young tax policy expert, said: 'It gets the government over a political hump - linking unpopular tax increases to popular causes - but there are dangers, too. What about the boring necessary stuff that can't be made acceptable?' She said genuine hypothecation would be revolutionary 'but fake hypothecation will raise expectations and encourage a pick-and-mix mentality'. Redston added: 'How can public transport authorities and the NHS plan if they cannot predict how much the hypothecated tax will generate over the next few years if the fuel escalator and tobacco duty will be decided Budget by Budget?' SHARING COMPANY OWNERSHIP OR MAKING ACCOUNTANTS RICH? Probably the most eye-catching measure in the pre-Budget statement - free TV licences for older pensioners aside - was the chancellor's pledge to introduce all-employee share plans. Brown said it would be the most tax-advantaged share plan ever introduced in the UK. Accountants claimed it would simply push up their fees. Under the plans, due to take effect in April 2000, employers will be able to award up to £3,000 of shares tax-free to each employee. Some or all of the shares may be awarded based on performance. Employees will also be able to buy shares out of pre-tax income up to a maximum value of £1,500 - so-called partnership shares. This may be matched by the employer on up to a two-to-one basis with national insurance exemptions also on offer. Other features include tax advantages for dividends reinvested in plan shares and a mechanism to deal with shares held by employees who leave their job. 'The government is offering all sorts of carrots that companies - and their employees - can't ignore,' said Michael Pearce, European partner at pensions adviser William M Mercer. 'The biggest prize for employers is the national insurance exemption. In many cases the cost of setting up and running a partnership share plan will be more than offset by savings in national insurance contributions.' But Nicola Reidy, a partner with PricewaterhouseCoopers, said: 'It remains to be seen if the plan will live up to these expectations. Nonetheless it gives employers an ideal opportunity to take stock of existing reward policies and share plans, and ensure they help meet the company's objectives.' BDO Stoy Hayward tax partner Mark Lee was more scathing. 'We have the headline, but it is always vastly more complicated than it needs to be and it means that people do not get the benefits they are supposed to get,' he said. 'Most entrepreneurs would like to be able to pay their accountants less.'
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