HM Treasury 26 November 1996
161/96 HMT 4
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FURTHER HELP FOR SMALL BUSINESSES
This Budget builds on our stable and growing economy to
provide a healthy environment for small firms and the self-employed.
Commenting on the Budget Treasury Minister Angela
Knight said:
"Stability is the key word for this Budget. Low inflation
and low interest rates enable businesses to plan and
invest with confidence. This Budget takes no risks with
these economic achievements. But as well as building on
a strong and stable economy, we have also been able to
reduce taxes on profits for small firms and freeze their
rates bills. Increasing the VAT threshold will make life
simpler for them and the reduction in employers' national
insurance contributions from next April will help keep
costs down. The stable economy ensures that businesses
will continue to enjoy a secure, low inflationary
environment which will enable them to grow, invest and
create jobs."
DTI Small Business Minister Richard Page welcomed the Budget,
stressing the importance of small firms to the economy. He
said:
"The voice of small business has been heard.
We asked businesses to let us know their concerns through
the "Your Business Matters" conferences. Government
listened. And this Budget does much to address those
concerns in the areas of business rates and the burdens
of income and corporation tax and VAT."
The main measures to assist small firms, including the self-employed,
are:
1. Tax on profits:
- Reduction in the basic rate of income tax from 24p
to 23p, reducing the burden on around 3 million
self-employed people by 3.03 Pounds per week
- Reduction in the small companies' rate of
corporation tax from 24p to 23p. 85% of taxpaying
companies pay at the small companies rate and all of
these (over 350,000 businesses) will benefit, as
will the further 5% of taxpaying companies who pay
at an effective rate between the small companies'
rate and the main rate.
2. Business rates:
- A freeze in next year's small properties' rates in
cash terms, benefiting 1.3 million small business
properties in 1997-8
3. VAT:
- VAT registration threshold increased from 47,000
Pounds to 48,000 Pounds
4. Finance and support for small firms and the self-employed:
- Measures to improve the effectiveness of the Venture
Capital Trust and Enterprise Investment Schemes.
Rules applying to groups of companies will be
relaxed; existing VCTs which raise additional money
will have further time in which to invest it.
- CGT reinvestment relief, which defers tax on a gain
where this is reinvested in a qualifying unquoted
company, is being expanded by relaxing the
application of the rules to groups of companies.
In responding to small firms' concerns expressed at the "Your
Business Matters" conferences, the Government pointed to cuts
in marginal tax rates as the best way of allowing firms to
keep more of their profits to invest or distribute as they
wish. The cuts in income and corporation tax announced by the
Chancellor today deliver on that promise. Action on business
rates was also a common theme and this Budget proposal for a
freeze in the small properties' business rate addresses that.
This year's Budget measures build on recent measures which
benefit small firms such as:
- the exemption from inheritance tax for unquoted shares in
qualifying companies
- CGT retirement relief which allows businesses to be
passed on with a reduced (or no) capital gains tax charge
- Venture Capital Trusts, the Enterprise Investment Scheme
and capital gains tax reinvestment relief which encourage
finance for small firms through tax reliefs on
investments - to date the Enterprise Investment Scheme
has helped over 450 small firms to raise over 50 million
Pounds whilst 12 Venture Capital Trusts have raised over
160 million Pounds in their first year of operation
- last year's announcement of a 0.2% cut in the main rate
of employers' national insurance contributions, due to
come into effect in April 97
- removal of the requirement for a statutory audit for
companies with turnover less than 90,000 Pounds, and
reduced requirements for companies with a turnover of
between 90,000 Pounds and 350,000 Pounds
- requirement on Government departments to abide by the CBI
Prompt Payers Code and the establishment of much more
rigorous reporting arrangements on payment performance by
departments and their agencies
- VAT cash accounting for small firms
- action to bring PAYE, NICs and VAT administration closer
together, including a joint 3-way helpline and the use of
a single form for employers for PAYE, NICs and VAT
registration.
- preparations for self assessment returns to be made
electronically
Notes for Editors
1. The small companies' corporation tax rate has been
reduced in line with the basic rate of income tax in
order to maintain the balance between incorporated and
unincorporated businesses. The UK's 23p rate for small
companies' corporation tax generally represents the
lowest tax rate in the EU on profits up to 300,000
Pounds.
2. The Enterprise Investment Scheme and capital gains tax
reinvestment relief were introduced in 1993 and 1994, to
encourage individuals to invest directly in small
unquoted companies. The Venture Capital Trust scheme was
introduced in 1995 to encourage individuals to invest
through a vehicle which holds the shares. These give
investors generous income tax and capital gains tax
reliefs.
3. Employers' National Insurance Contributions will be
reduced by 0.2% in April 1997 to offset the cost of the
landfill tax which was announced in the 1995 Budget and
which came into force in October of this year.
4. The "Your Business Matters" conferences were launched by
the Prime Minister on 26 September 1995. The outcomes of
11 regional conferences were presented in a report to the
national conference on 11 March 1996 at the QEII Centre.
The conferences were organised by a steering committee
representing the Institute of Directors, the Federation
of Small Businesses, the Forum of Private Business, The
TEC National Council, The Association of British Chambers
of Commerce and the Confederation of British Industry.
The regional conferences were sponsored by 4 major banks
- Barclays, Lloyds, Midland and NatWest. The
Government's response was published on 13 June. Copies
are available from the DTI's publication mailing house on
0171 510 0174 (please quote reference number URN96/765).
5. The Government announced in October that two new
challenge funds would be launched in 1997-8 - the Local
Competitiveness Challenge Fund and the Sectoral
Competitiveness Challenge fund. These form part of the
Government's initiative to simplify business support.
The Local Competitiveness Challenge Fund in particular
will help smaller firms by helping local partnerships
design and deliver the most effective and
customer-focused business support to firms.
6. If you have access to the Internet you can find this
information at "http://www.hm-treasury.gov.uk". Other
Treasury material can also be found at this address.