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Last Updated: Tuesday, 9 October 2007, 18:07 GMT 19:07 UK
Firms fearing higher tax burden
Factory chimneys
Firms could face higher local taxes
Plans to allow local government to levy extra taxes on companies to fund local projects raises the burden on firms, business groups have said.

In his pre-Budget report, the chancellor set out a proposal to allow local authorities to introduce supplementary business rates.

The British Retail Consortium said that this could cost retailers 100m and such a tax was open to abuse.

Lobby groups said firms could also be hurt by changes to capital gains tax.

"Alistair Darling's first pre-Budget report was a disappointing one," said John Walker, the policy chairman at the Federation of Small Businesses.


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"The UK's small business community, which contributes over half of the country's GDP, will not be helped by increased business rates and a less generous capital gains scheme."

'Business concerned'

The supplementary business rate proposal will give county councils and the Greater London Authority the power to tax businesses to fund local projects such as new transport links.

"Businesses will be concerned by the potential variability of this. They prefer uniform rates " said Bill Dodwell, a tax partner at Deloitte.

Mr Darling announced a flat 18% tax on capital gains and abolished taper relief that allowed some to pay as little as 10% tax on the sale of assets.

While aimed at private equity bosses, the less generous capital gains regime will make it more costly for owners of small businesses to sell up and could stifle entrepreneurship.

"This is yet another unwelcome hit on business," the Institute of Directors said.

Employees who take part in their company share option schemes will also be affected by the changes to capital gains tax, analysts said.

KPMG's Greg Limb said that workers would no longer get a favourable tax break for holding a stake in the firm they work for.

"This peculiar mismatch seems at odds with the government's stated aim of encouraging entrepreneurship and investment," Mr Limb said.

"Furthermore, many listed companies will feel sore that there will be no incentive for them to encourage their staff to hold their shares."

Corporation tax cut

However business groups welcomed news of a simplified tax system to benefit small businesses and the self-employed, which the chancellor said could save up to 1m a year.

Mr Darling confirmed that the main rate of corporation tax would be cut by 2 pence to 28p in the pound from April 2008, as previously announced in the Budget in March this year.

The rate for smaller businesses remains at the level set by his predecessor, Gordon Brown, who last year, in his final budget as Chancellor, raised it from 19% to 22%.

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