Small businesses have been given extra help to ride out the recession with an extension to the lifeline for loss-making companies to defer tax payments and a boost to credit insurance.
More than 100,000 businesses struggling with falling sales and revenues are set to have their losses 'wiped out' through the scheme, which allows loss-making companies to reclaim taxes paid on profits in the last three years.
This scheme, first announced in the pre-Budget report last year, was originally due to last for 12 months but has now been extended until November 2010. Darling said the average company would see repayments of around £4,000.
The Treasury has also decided to take action on the shrinking credit insurance market, which plays an essential role in the survival role of small businesses by offering protection if a business partner collapses.
It is launching a top-up scheme which guarantees that the government will match the funding from the private sector trade credit insurance “if insurers reduce their cover to any business operating in the UK”.
Firms falling into the emerging technologies sector, including those working in renewable and bio technology could also benefit from a new £750 million strategic investment fund.
Elsewhere, as announced at the pre-Budget, the planned increase in the small companies’ rate of corporation tax is being deferred for one year and the rate will remain at 21% for 2009-10. Darling said the move would benefit around 800,000 smaller companies.
Darling added that other measures announced in the pre-Budget were having a positive effect such as the Business Payment Support Service. More than 100,000 businesses employing over half a million people had taken up the option to defer their tax bills totalling £1.8 billion. This has now been extended beyond its six month limit.
Meanwhile changes were also afoot for the annual £50,000 investment allowance which was announced two years ago with Darling doubling the main capital allowance rate to 40%. This is intended to encourage firms to bring forward investment.
“It will mean enhanced tax relief to support investment of £50 billion this year,” Darling said.
However, Sally Grimwood, tax director at Deloitte, says: “This will be of absolutely no benefit to those making losses, and worth very little to the profitable because the net present value is next to nil.”
She adds: “We didn't see much additional help for businesses making tax losses. As things stand, such businesses can carry back as much tax loss as they like to the previous year (assuming that the previous year was profitable), and £50k for three years.
“This £50,000 three-year carry-back relief has been extended to losses being made this year as well. Although the £50,000 carry-back is nice, it's only worth around £10,000 in cash tax for most, and so isn't nearly enough to make a difference. Many had hoped to see the amount of loss available for three-year carry-back being increased, but will be disappointed.”