Darling abolishes taper relief

These changes, following on from those outlined in the Chancellor's October pre-budget report, are to take effect from 1 April 2008.

He also enhanced the tax breaks available to entrepreneurs, introducing a 10 per cent rate on gains of up to £1 million.

However small businesses affected by these sweeping changes have hit back, saying that they have made it very difficult to plan for the future.

Richard Lambert, the CBI's director general, said that: "The change is superficially quite clever and on the surface might seem like a relief after three months of uncertainty, but even the smallest business owner will lose taper relief and indexation and be worse off than before October."

Francesca Lagerberg, head of national tax at Grant Thornton, added that the proposal was improperly conceived giving no breathing space for business owners to sort out their affairs.

"For most businesses, certainty is key, but they've been held in an unacceptable state of limbo since October last year as the Treasury tried to remedy this hasty piece of legislation."

"In proposing the flat rate, I believe the Chancellor was blinded by his target of private equity and forgot about the small businesses that are the lifeblood of this country. That has now been set to rights, but I still despair for the UK's serial entrepreneurs.!

She concluded: "Tax simplification is a very attractive but radical idea, so needs time to let people and the Treasury untangle the complexities in the UK tax system and ease business owners into the new regime and plan ahead."