A substantial package of tax and spending measures to help small businesses was set out by the Chancellor today. It confirms the Government’s commitment to make Britain the best environment in the world for small business.
Together the tax and spending packages will help small businesses:
– to reduce their tax burden and overcome cash-flow difficulties
– to recruit and retain skilled employees
– boost investment and encourage innovation
– to make more and better use of IT
– to deal with Government more easily
This package builds on what the Government has already done to help small businesses to invest and to gain access to the resources they need to overcome the barriers to growth.
Reducing tax and helping cash flow
Since coming to power, the Government has introduced a large number of measures to reduce the tax bills of small businesses.
And today the Chancellor confirmed that the new starting rate of corporation tax of 10% will be introduced as planned from 1 April.
270,000 companies will benefit from this halving of the existing rate. The measures introduced this year, together with the 3p cut in small company rates already announced, will cut corporation tax bills of small businesses on average by 25%.
He also announced that the existing first year allowances for investments in plant and machinery by small and medium-sized businesses will be replaced by permanent first year allowances at the present rate of 40%. More than 99% of businesses can benefit from the improved cash flow provided by the enhanced allowances, which will help them to grow and to invest and to plan their investments with greater certainty.
In a further move to improve the cash flow situation of small businesses, and to help make them more competitive, the Inland Revenue will extend the quarterly PAYE scheme to benefit an additional 40,000 employers. The threshold for quarterly payments will be raised from 1,000 pounds to 1,500 pounds a month, saving employers up to 150 pounds a year. This follows a 400 pounds rise in the last Budget.
There is also good news on VAT for small businesses in the form of an increase in the VAT registration and deregistration thresholds from 1 April 2000. By raising the VAT registration threshold to 52,000 pounds, the burden of VAT on small businesses is eased, so encouraging their start-up and growth. The deregistration threshold is being increased to 50,000 pounds. The increase will maintain the value of the thresholds in real terms and they will remain amongst the highest in Europe.
Helping companies to recruit and retain skilled employees
Final details of the new all-employee share plan were announced today, including special measures designed to help smaller companies to set up a plan.
This Budget also recognises the important role of share options to young, growing businesses which often have insufficient cashflow to reward their employees.
Enterprise Management Incentives (EMIs) will enable these companies to recruit and retain the people they need. And in a further move, the number of employees who can be granted EMI options will be increased to 15. EMIs will reward key people who are prepared to take a risk and use their skills and talents in helping these companies achieve their potential.
Companies can grant each of their key employees options worth up to 100,000 pounds, normally without any Income Tax or National Insurance charge. Moreover, when the shares are sold, Capital Gains tax taper relief will normally start from the date the options were granted.
But workers will need to be well trained to work in the new industries of the future. So, the Finance Bill will extend indefinitely the existing tax reliefs for contributions by traders to Local Enterprise Agencies, Training and Enterprise Councils, Local Enterprise Companies, and Business Link organisations.
Boosting investment and encouraging innovation
Extensive changes to the capital gains tax (CGT) rules to boost productivity and increase the provision of risk capital were announced by the Chancellor today. These changes will help all businesses, not just the small ones.
Changes were today announced to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme to improve the way they work, make the schemes more attractive to investors and benefit small higher risk companies seeking funding.
The economy of the future depends on investment in new ideas and technologies. The new Corporate Venturing Scheme will allow companies which invest in the shares of small higher risk trading companies to obtain corporation tax relief on those investments, defer tax on capital gains that arise by reinvesting within the scheme and set off capital losses against income. The Government believes that corporate venturing has an important role to play not just in providing seed-corn capital but in giving the sort of help and advice which will nurture tomorrow’s big ideas.
If Britain is to compete in the global economy, companies will need to invest in research and in the development of new technologies.
Research and Development (R&D) tax credits, which will be available from 1 April, will encourage innovation by giving small and medium-sized companies a strong incentive to increase their investment in R&D.
Relief for current spending on qualifying R&D will be increased from the existing 100% to 150%; so for every 100 pounds a company spends on this R&D, it can claim 150 pounds against its taxable income. Under this enhanced relief the cash cost of R&D will be reduced by 30% for a company paying tax at the small companies’ rate
And companies that are not yet in profit can take the relief up front and reduce the cash cost of their R&D by 24%. R&D tax credits are also available to companies that have not yet started to trade. Small and medium-sized companies will benefit by an estimated 150 million pounds a year.
Encouraging use of IT
A number of measures were announced today which will encourage small businesses to invest in IT and to embrace E-commerce. Increased use of IT will also make their dealings with Government and business faster and more efficient:
– Small businesses that invest in Information and Communication Technology equipment (computers, software and internet-enabled mobile phones) over the three years from 1 April 2000 will be able to claim 100% first year capital allowances, thereby getting immediate relief on the whole cost of their investment.
– A 60m pounds package to help small firms get on-line and deliver services to them on- line. This includes 20m pounds for a new call-centre and web-based advice and information services, 10m pounds for a major boost to advice and training for small firms on using IT and 30m pounds to build a secure infrastructure for electronic communications between government, business and citizens.
– An extra 50 pounds discount for small employers paying tax credits to their employees. Small employers with tax credit cases in 2000/01 who file their PAYE end of year returns over the Internet and pay any tax due electronically will receive the discount. This is an addition to the 50 pounds discounts for VAT and PAYE announced on 16 February to encourage small businesses to embrace Internet technology. A total discount for small businesses of up to 150 pounds. The PAYE and tax credit discounts will also be available to small employers who use an Internet payroll service.
– The Inland Revenue Payroll Software Standard, which was published today following extensive consultation, will encourage small employers to use accredited software packages, Internet payroll services or payroll bureaux to calculate their payroll
Helping small business deal with Government
From April 2000, the Inland Revenue will offer 30m pounds more support for small businesses over the next 2 years by expanding the range of help available on payroll issues.
This builds on the successful introduction of the New Enterprise Support Initiative (NESI) which was launched last year. The size and scope of the NESI helpline for employers will be increased to offer a payroll support service over the phone.
The Revenue’s Business Support Teams (BSTs) will double in size, enabling them to offer new employers a detailed support visit to talk through various payroll issues and offer a health check of payroll operations. BSTs will look to establish clear links with the help and support that will be available from the Small Business Service.
NOTES FOR EDITORS
Further details can be found in the following press releases and Budget notes:
REV1 Inland Revenue tax rates and allowances for 2000-01
REV3 Boosting productivity and fairness: employee share ownership
REV4 Capital gains tax cuts to boost business investment
REV10 Helping to get it right
REVBN1A Helping small employers – increase in quarterly payments limit for PAYE
REVBN1B Improvements to EIS and VCTs
REVBN1C Corporate venturing scheme
REVBN1D Extra discount for employers paying tax credits
VAT measures – Details are in Budget Notice 25/2000 and 55/2000.
A copy of the Regulatory Impact Assessment with further details on Research & Development Tax Credits can be found on the Inland Revenue website at www.inlandrevenue.gov.uk
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