The first pre-budget report from Chancellor Alistair Darling has focused on tax avoidance schemes, and includes a tightening up on the private equity industry.
Months of protest over tax breaks for private equity firms have put pressure on the government, and today Darling announced that taper relief, which allows private equity firms to pay only 10% tax on assets owned for at least two years, is being abolished.
Instead, there will be a new flat rate of 18%, which according to Darling will ensure that private equity pays a ‘fairer share’. According to some, this will deplete the amount of funding available to smaller businesses.
Private investor syndicate Hotbed had previously warned that such a change would come at an bad time for small firms, on top of the ‘credit market crunch, which has seen banks increasingly pulling out of private equity deals and becoming more conservative with lending’.
The report also included a cut of 2p in the pound, to 28p, in corporation tax. David Kern, economic adviser to the British Chambers of Commerce (BCC) said:
“We are disappointed that [Darling] did not take the opportunity to reverse the increase in small companies corporation tax announced at the same time.”
Additionally, as expected, Darling revised his GDP growth forecast for 2008 from 2.5-3% to 2-2.5%. Kern commented:
“However, there remains a risk that these figures will have to be downgraded further following the global credit crisis and the fallout from Northern Rock.”
He also added: “Reflecting the lower growth forecast the Chancellor found it necessary to raise his borrowing figures for the next few years.
“This was expected but heightens concerns amongst businesses that further tax increases may be needed in future years.
© Crimson Business Ltd. 2007
