Measures for business unveiled

Broad support for many of the initiatives announced

The package of measures for business unveiled by Chancellor Alistair Darling during his second Pre-Budget Report last November, included a postponement to increase corporation tax for small firms, the creation of a fund for small business borrowing and a reduction in the rate of VAT.

Once profitable firms can offset up to £50,000 of any losses they incur over the next three years so that they can claim valuable cash rebates.

Business groups welcomed the decision to defer a planned increase in the rate of corporation tax paid by smaller companies from 21per cent to 22 per cent. The postponement to increase the rate of corporation tax had originally been planned for April this year.

There was also broad support for many of the other initiatives announced. A new Small Business Finance scheme set up with the regional development agencies to lend, alongside banks, up to £1bn from early this year, with a further £25m put into specific cashflow loan funds, operated by the regional agencies.

The creation of the government fund for small businesses is aimed at stimulating viable businesses that have suffered from the credit crunch, while a £4bn loan from the European Investment Bank was also secured for the purpose of freeing up capital for UK banks to pass onto small businesses.

The Treasury said; “It was acting because it had become clear from discussions with banks and businesses that many of these small businesses are struggling to access short-term credit.”

The Treasury also launched a new £50m fund that will take stakes in “over-leveraged” businesses by buying up distressed debt and turning it into equity holdings.
The cut in the rate of VAT from 17.5 per cent to 15 per cent became effective from 1 December last year and will run until 31 December 2009. This announcement is a temporary measure, with much of what will be given due to be clawed back post 2011.

There was also welcome news that payments could be spread for VAT, national insurance and corporation tax over a longer period, while previously profitable businesses that need to repay tax will be able to offset losses for the last three years against the amount they owe.

Owners of empty commercial premises with a rateable value of less than £15,000 a year could also benefit from the temporary increase in empty property relief for 2009/10.

John Walker, national policy chairman of the Federation of Small Businesses (FSB) welcomed the package, and said; “This is a sign of the importance of small businesses to the UK economy.”

“The government’s Small Business Finance Scheme, which closely resembles the Small Business Survival Fund the FSB has been calling for, will provide a vital cash boost to businesses struggling with rising costs and a lack of credit.”

The 0.50 per cent increase in national insurance contributions (NIC) from 2011would cost employers an extra £2bn, he warned, while the increase in the top rate of income tax to 45 per cent at the same time would increase the war for talent as more people opted to move to countries with a lower threshold.

“It is likely that higher taxes and NIC costs will lead to a demand for employers to introduce tax mitigation schemes as these become even more attractive in a higher tax regime,” he said.

“Of particular interest, with share prices currently low, may be schemes that offer shares to employees now which will ultimately suffer an 18 per cent capital gains tax charge on sale rather than a 45 per cent income tax and 1.5 per cent NIC charge.”