BUDGET 98 - A BUDGET FOR ENTERPRISE
HM TREASURY 7
17 March 1998
Today Chancellor Gordon Brown announced in his Budget a
comprehensive package of measures to promote enterprise and
encourage investment.
The package includes:
- Reduction of 1 per cent in Corporation Tax rates from 1
April 1999: this will benefit around 400,000 companies and
enable them to retain more of their profits for investment
and growth.
- The abolition of Advance Corporation Tax (ACT) from 1 April
1999: all companies that pay dividends will benefit. And
following consultation, medium-sized companies, as well as
small companies, will not have to pay any of their CT in
quarterly installments. This will maintain their cashflow.
- Extension of enhanced first-year capital allowances. These
will be set at 40 per cent for expenditure on plant and
machinery between 2 July 1998 and 1 July 1999: more than 99
per cent of businesses will qualify for the enhanced
allowances, which will improve their cash flow and help
them to grow and invest. The Chancellor will continue to
consider how best to create an environment that encourages
investment by small and medium-sized enterprises (SMEs).
- Reforms to Capital Gains Tax to encourage longer term
investment. The introduction of the CGT taper will
substantially reduce the capital gains tax charge on the
disposal of long-held business assets.
- A unified Enterprise Investment Scheme (EIS) and CGT
reinvestment relief. This will stimulate the provision of
equity finance for smaller, higher-risk, trading companies.
- Consultation on management recruitment incentives for high-
tech SMEs. The Government will consult on ways of
incentivising managers through equity-based remuneration.
- University Challenge: A new 50 million pounds challenge
fund aimed at unlocking the wealth of knowledge and
innovation in Britain's universities.
- Government working to ease regulatory burden on business:
Package of measures to simplify rules and help business
comply.
Reductions in Corporation Tax Rates
The main rate of Corporation Tax (CT) will be cut to 30 per cent
from 1 April 1999. The reduction will ease the transition for
large companies to quarterly instalment payments of CT which is
being introduced from 1999 as part of the Government's initiative
to modernise the company tax regime.
The small companies' rate of corporation tax (SCR) will be cut
to 20 per cent from 1 April 1999. This will be the lowest level
of SCR since corporation tax was introduced in 1965. This cut
will boost the tax profits of small and medium-sized companies
and encourage them to invest. For more detail see press release
IR 8.
Abolition of Advance Corporation Tax (ACT)
ACT will be abolished from 6 April 1999. This will eliminate
surplus ACT which often resulted in the double taxation of
profits earned overseas when they were distributed by UK
companies.
The abolition of ACT will reduce the complexity of the current
corporation tax system, and will be replaced by a system of
quarterly instalments for CT. Instalments will be phased in over
four years. Following consultation, medium-sized companies as
well as small companies will not have to pay any of their CT in
quarterly installments. This will enable them to maintain their
cashflow. For more detail see press release IR 9.
Capital allowances
In the last Budget, the Chancellor introduced a first-year
allowance at 50 per cent for small and medium sized enterprises
on plant and machinery expenditure up to the 1 July 1998. Under
the Budget proposals, there will be a first-year allowance at 40
per cent for expenditure on plant and machinery up to 1 July
1999. These allowances are available to over 99 per cent of
businesses, and will help small businesses to invest.
The Government will continue to look at how best to create an
environment that encourages investment by small and medium sized
enterprises. This will include reviewing the case for continuing
with enhanced capital allowances. For more details see press
release IR 10.
Reforms to Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is being reformed by the withdrawal of
the indexation allowance on gains realised after 6 April 1998,
and its replacement with a taper under which long-term gains are
taxed less heavily than short-term gains.
For business assets, under the taper the chargeable gain falls
from 100 per cent for assets held for less than one year, to 25
per cent for assets held for ten years or more. This is
equivalent to a reduction in the rate of tax from 40 per cent to
10 per cent over ten years for a higher rate payer.
The reform will help investment by encouraging the longer term
holding of assets through reducing the effective rate of CGT. It
will also stimulate entrepreneurial activity by rewarding longer-
term investment by owners and significant investors in
businesses. For more detail see IR 16.
New Enterprise Investment Scheme (EIS)
Rationalisation of the Enterprise Investment Scheme (EIS) and CGT
reinvestment relief to create a new unified scheme that preserves
the best parts of the existing reliefs. For more detail see IR
13.
Consultation on management recruitment incentives for high-tech
SMEs.
The Government is to consult on ways of incentivising managers
through equity-based remuneration.
University Challenge
A new 50 million pounds challenge fund was announced in the
Budget today, aimed at unlocking the wealth of knowledge and
innovation in Britain's universities.
'University Challenge' will invite universities to compete for
seed venture capital funds. These will be used to help turn
scientific discoveries into commercially viable projects, improve
university business awareness and bring innovative and
competitive products to the market place. For more detail see
HMT 15.
Tax simplification measures
Recognising their significance to small businesses, the
Chancellor has announced a consultation on VAT thresholds. In
the interim VAT registration and deregistration thresholds will
be increased broadly in line with inflation from 1 April 1998 by
1,000 to 50,000 pounds and 48,000 pounds respectively. For more
detail see C&E 1.
Other measures to help ease regulatory burdens include the
transfer of the Contributions Agency to the Inland Revenue and
the extension of the Inland Revenue's pilot payroll assistance
scheme with the expectation of rolling out nationally from April
1999.
Consultation document on R&D and innovation
The Chancellor and the President of the Board of Trade jointly
published a consultation document seeking views on how the UK can
improve its performance on investment in research and development
(R&D).
In the joint foreword to the document the Chancellor and the
President of the Board of Trade said:
" In today's competitive world, businesses need to innovate to
succeed. They have to stay one step ahead of the competition -
inventing and developing new products; changing existing
products; and providing ever more sophisticated services to meet
consumer needs...
"While all types of innovative activity have a role to play,
there is an increasing premium on the successful exploitation of
new technology. This is why the Government attaches so much
importance to examining what can be done to improve the UK's
performance on R&D investment...
"This document is intended to stimulate debate...We hope that the
widest possible audience will respond."
NOTES FOR EDITORS
For further details see also:
HMT 15 University Challenge: unlocking Britain's commercial
potential
IR 8 Corporation tax rates: a further reduction from April
1999
IR 9 A modern system for corporation tax payments
IR 10 Extension of enhanced first-year capital
allowances for small and
medium-sized businesses
IR 13 Tax Incentives for Venture Capital
IR 16 Capital gains tax reform
C&E 1 VAT thresholds increased and consultation announced
HM TREASURY PRESS OFFICE