Small businesses hail Capital Gains Tax climbdown

The announcement of 'entrepreneur's relief' on the chancellor's Capital Gains Tax (CGT) plans has been welcomed by small business groups.

Many business leaders reacted angrily to a proposed end to taper relief on CGT when it was first mooted last autumn. The chancellor of the exchequer Alistair Darling has come under sustained pressure to revise the plans, which are due to come into effect on 1 April 2008.

However, yesterday Mr Darling sought to appease the owners of smaller firms by announcing that the first £1 million of capital gain would remain subject to 10% tax, not the 18% flat rate originally proposed.

The compromise is close to the revision demanded by the Federation of Small Businesses (FSB), which yesterday said that it welcomed the change, but that the way in which the issue had been handled had "seriously eroded small businesses' trust in the government".

"There has been huge uncertainty about what small businesses' tax liabilities would be from April 2008 and this has made planning for the future very difficult," said the FSB's national chairman John Wright. "Even now small business owners have very little time to prepare before these new changes come in."

The British Chambers of Commerce expressed similarly mixed feelings in its response to the news.

"What cannot be ignored… is that the ultimate impact of these changes is going to be a £700 million tax take from business," said director general David Frost. "It is also clear that this has done nothing to simplify the taxation system, the original stated aims of the changes."

"At a time when the economy is facing a downturn the government is taking yet more money from business. The government should not have changed a Capital Gains Tax system that was working well and helped to foster an entrepreneurial spirit in the UK."