FURTHER HELP FOR SMALL BUSINESSES
REV/C&E 1
7th March 2001
A package of initiatives to help small businesses was announced by the Chancellor today.
There will be consultation on a radical new look at the tax treatment of small businesses – aimed at reducing regulatory burdens for small businesses through aligning their profits for tax purposes broadly with those reported in their accounts. This will provide scope to avoid dealing with the complexities of the tax system. The Government will consult with small businesses and their representatives to produce a regime that blends the twin aims of simplicity and fairness.
There is also help for certain small and medium sized enterprises (SMEs) in:
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a package of measures which will be introduced to help small businesses as they develop and grow, allowing them to manage their entry into the VAT system, reduce burdens and improve their cash flow. The package includes:
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increasing the VAT registration threshold;
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greater availability of the cash and annual accounting schemes;
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consultation on the flat rate and annual accounting schemes; and
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better advice;
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improvements to Enterprise Management Incentives (EMI) to make it easier for companies to operate, removing the limit on the number of employees in each company who can hold EMI options, doubling the limit on the total value of shares under EMI options to £3 million, and offering advance assurance on whether or not a company qualifies;
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consultation on proposals to change the rules for life insurance companies that invest in venture capital limited partnerships. This proposal, which was recommended in the Myners review of institutional investment, should, by significantly reducing tax compliance costs for life companies, encourage more of them to provide equity finance to SMEs through the medium of limited partnerships;
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relaxing some of the rules of the Enterprise Investment Scheme, Venture Capital Trust scheme and Corporate Venturing Scheme to make it easier for small entrepreneurial companies to raise equity and long term finance;
Details of other simplification measures for SMEs can be found in Press Notice REV/C&E 2.
Details
The VAT SME package includes:
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increasing the VAT registration threshold, in line with inflation, to £54,000, keeping the UK threshold the highest in Europe. This will keep another 8,000 of the smallest businesses out of the VAT net;
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for businesses under a new consolidated small business taxable turnover level of £100,000, consulting in the summer on:
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a new optional flat rate scheme under which they can avoid having to account internally for VAT on all of their purchases and sales. VAT would be calculated as a percentage of their taxable turnover; and
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allowing them immediate entry to the annual accounting regime rather than having to wait until they have been registered for one year.
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helping larger SMEs by introducing a new consolidated SME taxable turnover level of £600,000 which will:
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extend the benefit of the cash accounting scheme by expanding the taxable turnover limit from £350,000 to the new SME consolidated level. This will allow an additional 40,000 traders to improve their cash flow; and
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raise the entry threshold to the annual accounting scheme to £600,000 so that at least 100,000 more businesses are able to benefit from lower compliance costs through the ability to file VAT returns annually rather than quarterly.
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providing better advice through a lifelong business support programme and a national contact centre for general enquiries.
NOTES FOR EDITORS
1. Inland Revenue have today issued a technical Note A Review of Small Business Taxation. It is available from the Inland Revenue website or from:
David Easton
Inland Revenue
Business Tax
Room 335
22 Kingsway
London
WC2B 6NR
The closing date for replies is 31 May 2001.
2. The report by Paul Myners to the Chancellor includes a recommendation that Government should legislate to change the taxation of insurance companies’ limited partnership investments. Under the measure proposed in the Myners review, life insurance companies would pay tax on chargeable gains based on distributions rather than on their share of the gains from the partnership’s underlying investments in companies. The Government proposes to consult with interested parties in the insurance and venture capital industries about the precise scope and detail of the change, with a view to publishing draft clauses for inclusion in a subsequent Finance Bill. The expectation is that any new legislation should apply for life assurance companies' accounting periods beginning on or after 1 January 2002.
3. Further information is contained in the following press releases, Inland Revenue Budget Notes and Customs & Excise Budget Notices:
Press releases
REV/C&E 2 Simplifying the tax and NICs systems
REV 3 Tax boost for employee share ownership
IR Budget Notes
REV BN 6 More flexibility for Enterprise Management Incentives
REV BN 11 Enhancements to the venture capital schemes
C&E Budget Notices
C&E BN 74/01 VAT: Annual Accounting
C&E BN 78/01 VAT: Cash Accounting
C&E BN 82/01 VAT: Increased turnover limits for registration and deregistration
Inland Revenue Budget Notes are available on the Department’s website (see below).
Customs and Excise Budget Notices are available from the Department’s website (see below) and from its Business Advice Centres.
INLAND REVENUE PRESS OFFICE
Media enquiries to: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)
Non-media enquiries to: 020 7438 6420 / 6425
(Office hours only)
Inland Revenue information is on the Internet:
HM CUSTOMS AND EXCISE PRESS OFFICE
Media enquiries to: 020 7865 5471/5472(out of hours: 020 7620 1313)
HM Customs and Excise information is on the Internet:
HM Treasury,
Parliament Street, London SW1P 3AG, UK
+44 (0)20 7270 5000
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