Darling offers helping hand to business

Businessman with open sign

Chancellor Alistair Darling has attempted to smoothe over the damage the credit crisis has wreaked on smaller businesses.

Struggling small and medium businesses received a much-needed lifeline of measures in the 2008 pre-Budget report that aim to keep them afloat as cash flow and credit problems continue to bite.

The UK’s 4.7 million small and medium sized businesses (SMEs) have been given a reprieve from the planned increase in corporation tax, set to rise from 21% to 22% in April next year. The move could save businesses as much as £400 million at a time when they are struggling to cope with the economic downturn.

Some 75,000 previously profitable businesses which have since slipped into the red were also given a lifeline with losses of up to £50,000 for one year now allowed to be offset against profits from the last three years.

Those that are facing difficulty meeting their business taxes, including VAT, corporation tax, income tax and national insurance, have also been given the option of spreading their payments “for as long as they need”.

Sue Bonney, head of tax at KPMG Europe, says: “Smaller businesses will welcome extra time to pay tax bills and will be relieved to see the rate rise deferred. At a time when they may be struggling to get funding from banks, this could really make a difference."

But she also warns: “Many of the measures for business announced today have been targeted at SMEs – although with £3 billion of measures to go around 3.6 million companies, it won’t be exactly a bonanza as this works out at less than £1,000 per company.

“Anything that comes wrapped up in red tape is always unpopular and the detail on many of these measures is yet to emerge. And overall the lack of detail is disconcerting.”

In the day–to-day running of businesses, Darling announced a temporary increase in the threshold for empty property relief to £15,000. Around 70% of all empty properties for the coming tax year will be exempt from business rates.

Funding issues came back into the spotlight with multi-billion pound cash injections available for small businesses. Around £1 billion will be made available by the end of the year through a £4 billion deal between UK banks with the European Investment Bank while the government is also to offer credit through a temporary Small Business Finance Scheme.

Darling said: “It should allow small businesses to borrow sums from a thousand pounds to a million pounds at more flexible terms than before, making lending more affordable and easily accessible.”

Smaller exporters are also in line for a £1 billion boost through Export Credit Guarantees. But larger businesses were celebrating after Darling confirmed the launch of a tax exemption on the dividends paid on their foreign subsidies which have led to a host of businesses leaving the UK.

Chris Sanger, head of tax policy at accountancy giant Ernst & Young, says: “Following a spate of high profile corporate departures from the UK over the last 12 months, the chancellor has now set out a new controlled foreign companies regime focused on protecting the UK from diversion of profits rather than taxing profits otherwise unconnected with the UK.

"This should help to stem the tide of companies leaving these shores and may even make the UK more competitive for the future."

Peter Cussons, tax partner at PricewaterhouseCooper, adds: "At long last we have a commitment to introduce the foreign dividend exemption from 2009. This is most welcome, subject to us seeing the details regarding eligibility and companion revenue raising measures."