Corner shops, restaurants and small manufacturing companies reacted with anger as Gordon Brown was accused of taking £820 million in additional tax from small businesses to help to off-set reductions in corporation tax for larger firms.

James Lowman, chief executive of the Association of Convenience Stores, which represents 32,000 small shops, said: “The Chancellor talks about helping entrepreneurs but has delivered a kick in the teeth to small businesses, including our members.”

The small print of the Chancellor’s Budget revealed a plan for an increase of three percentage points in tax on profits below £300,000 over the next two years to 22 per cent.

Mr Lowman said that Mr Brown’s move was “bizarre” in the light of concerns about the future of the high street and the preservation of small local shops, 10,000 of which have closed since 1997. Most single-store operators would make considerably less than the £300,000 profits threshold. “Effectively, the Chancellor has subsidised the profits of larger retailers through tax hikes on the smallest,” he said.

The Chancellor offered small companies incentives for investment with an extension to their first-year capital allowance of 50 per cent, and the subsequent introduction of 100 per cent relief for capital expenditure up to £50,000 on general plant and machinery, starting April next year. David Frost, Director-General of the British Chambers of Commerce, said the Budget could be damaging for small and medium-sized business in the long term.

He said the reduction in corporation tax relief for small businesses was “a substantial rise and will hit those looking to grow their business.”

The Chancellor also promised to increase the tax allowance on research and development expenditure. Bill Rossiter, managing director of NoClimb Products, a 50-man fire safety technology firm based in Hertforshire, said: “This is a typical Brown budget that gives with one hand and takes away with the other. The increased tax charge on small business will only be offset by R&D — an extremely welcome measure in its own right but one which will be of benefit only to a small number of businesses.”

Tax experts said that the Chancellor was attempting to clamp down on “one man band” businesses which incorporate in order to cut back their overall tax and national insurance liabilities by reducing the differential in the tax burden between companies and self-employed individuals.

They said that Mr Brown’s tinkering with capital allowances was supposed to combat the increase in corporation tax for small businesses but would not help those who did not incur capital expenditure.

Victor Dauppe, Tax Principal at MacIntyre Hudson, said: “Little Peter is paying for big Paul.”

The Forum for Private Business and the British Hospitality Association (BHA), which represents restaurateurs and hoteliers, said that the repeal of tax relief for small businesses came on top of other measures that were relatively more costly for small businesses, such as additional holiday entitlement and increases to the national minimum wage.

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