Support for small businesses
Chancellor Alastair Darling has vowed to stand by small businesses as many struggle to keep their finances on track during the “most severe" recession since the global depression.
In addition to economy-wide measures, Darling was at pains to stress during his pre-Budget report that the government will continue to take targeted actions to support small and medium-sized businesses as the UK prepares itself for the long path to recovery.
Of key interest was the government’s decision to freeze an increase in corporation tax which had been widely expected to come in next year. The chancellor said the planned 1p increase would be deferred in a move that would aid up to 800,000 small businesses.
John Wright, national chairman of the Federation of Small Businesses, said the move “will give small companies a real helping hand, giving them the chance to expand and invest, and to grow out of the recession with confidence”.
Tony Bernstein, senior tax partner at HW Fisher & Company, adds: “This is the second time corporation tax rises have been deferred and it was largely expected. The real benefit is for companies whose tax bill will not increase by the £3000 per year it was due to based on a profit of £300,000.”
Those hit hardest by the global downturn could stand to benefit from the chancellor’s plans to extend the business payment support service, designed to help small companies unable to pay their taxes. To date, the scheme, which covers income tax, corporation tax, VAT, PAYE and national insurance, has enabled over 160,000 struggling businesses to spread over £4 billion of tax.
Small and medium-sized enterprises will also benefit from up to £500 million worth of loans as the government pledges to extend its £1.3 billion Enterprise Finance Scheme for bank loans to small businesses by a further year.
Wright says: “This is a welcome move, although we wanted to see the scheme extended indefinitely and promoted further to help small firms get much-needed access to finance.”
In addition, the temporary increase in the threshold for empty property rate relief will be prolonged, resulting in the exemption of 70% of all empty properties.
As government borrowing rose to £178 billion in 2009 - higher than the £175 billion previously touted - Darling highlighted that the UK’s hub of creativity would not be comprised as it seeks to claw back its overwhelming deficit.
In a drive to boost innovation, the government has introduced a Patent Box; a reduced rate of corporation tax imposed on income from patents registered in the UK from April 2013 onwards.
Sue Bonney, head of tax at KPMG, says this move does not go far enough: “In a speech full of references to growth and innovation, the only targeted measure towards this seems to be the new tax regime for profits arising from patents. Whilst undoubtedly to be welcomed, this is a long way off as it won’t come in until 2013 and only on patents registered after then. This seems very far away when the fact is that businesses can go elsewhere now and get that relief straight away.”
In a last attempt to prove its loyalty to smaller enterprises, the chancellor announced the creation of the Growth Capital Fund, in addition to the £325 million UK Innovation Investment Fund currently in existence. Separately, the Strategic Investment Fund will receive a cash injection of £200 million to harvest hi-tech projects, including £150 million for low-carbon investment.
However, business bodies warned that going ahead with the proposed 0.5% increase in employers' national insurance contributions will not encourage job creation within the small firm sector.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.