HM Treasury 2 9 March 1999
A BETTER DEAL FOR ENTERPRISE AND BUSINESS
A better deal for enterprise and business was set out by the
Chancellor today giving businesses the support and advice they need
to thrive and grow.
The package includes:
- a new 10 per cent rate of corporation tax for the smallest
companies those with profits of up to #10,000. The 10 per cent
rate will help encourage investment and enterprise, and will
benefit some 270,000 companies;
- a new tax credit on Research and Development for Small and
Medium Sized enterprises (SMEs) which the Government will
introduce in 2000;
- a new Small Business Service (SBS) led by a high-profile Chief
Executive to coordinate advice and support for SMEs. The SBS
will have a new role helping businesses comply with regulation,
and it will offer a new Payroll Service to new small employers,
benefiting up to 80,000 new employers every year;
- a two thirds increase in the limit on the Quarterly PAYE
option for employers, allowing an extra 130,000 small employers
to obtain cashflow benefits from the scheme; and a new software
standard making it easier to operate PAYE;
- extension of 40 per cent first-year capital allowances for
SMEs for a further year. Over 99 per cent of all businesses
qualify for the benefit;
- a boost to venture capital with a new #20 million Venture
Capital Challenge, to create new funds across the UK providing
finance for young, high-tech firms in partnership with the
private sector; and a commitment to introduce a new tax
incentive for corporate venturing in 2000;
- new enterprise management incentive for SMEs to encourage
talented managers into small potentially high-growth companies,
and new proposals for an all-employee share ownership scheme to
be introduced from next year;
- a boost to science, with an extra #100 million allocated to
the Joint Infrastructure Fund, the #600 million challenge fund
announced last July to renew science's capital base; and
another #15 million for University Challenge which provides
seedcorn funding for commercial projects; there will now be a
second round of this competition;
- a new national IT strategy built around improving computer
literacy and access to computers in the community, in business,
in homes and in schools;
- discounts on training costs under Individual Learning Accounts;
and
- measures to build on the Government's efforts to improve
competition, including measures to improve information for
consumers of retail financial services.
Small Business Corporation Tax Rate
From April 1 2000, companies with profits of up to #10,000 will pay
Corporation Tax at 10 per cent. Companies with profits of up to
#50,000 will benefit through relief given to ease the transition from
the new starting rate to the 20 per cent rate.
R&D Tax Credit
The Budget sets out proposals, for introduction in Finance Bill 2000,
for a R&D tax credit for SMEs based on the total cost of their R&D
expenditure. The tax credit targets SMEs since this is where the case
for providing help through the tax system is strongest. The
Government recognises the strategic importance of helping fast-
growing, innovative SMEs develop. It also recognises that R&D is a
long-term investment which many SMEs find difficult to finance.
Particular help is given to early- stage firms not yet in profit
since they tend to be the most cash-constrained. The tax credit will
reduce the after-tax cost of R&D for tax-paying companies by 12 1/2
per cent. For companies not yet in taxable profit, the tax credit
will reduce the immediate cash cost of R&D by 24 per cent. In return
for this tax credit payment, such companies will surrender the right
to carry forward their R&D costs to offset against future profits.
Small Business Service
The Government will create a new Small Business Service. The
Government believes that the current framework for giving support and
advice to SMEs needs to be given a stronger focus, with more emphasis
on helping SMEs comply with regulation.
The SBS will work to:
- improve the quality and coherence of delivery of Government
support programmes;
- give more help to SMEs on complying with regulation; it will take
on some responsibilities from the Better Regulation Unit
The SBS will offer a new automated Payroll Service to all new small
employers. It will also run the DTI's Enterprise Fund, providing loan
guarantees and other help for small business, and the new Venture
Capital Challenge for high tech (see below); and consider innovative
schemes to help the unemployed and others start and grow small
businesses.
The Government will be looking to recruit a high-profile chief
executive , who will be accountable directly to Ministers and to
Parliament. The Secretary of State for Trade and Industry will
consult on further details of the Government's plans.
PAYE
The two-thirds increase in the Quarterly PAYE limit gives an extra
130,000 small employers the option of paying PAYE and National
Insurance Contributions in quarterly, rather than monthly,
installments. The expansion of the scheme takes the total number of
employers that can benefit up to 720,000. The Government will also
establish a new software standard for the systems used by small
employers to operate PAYE and NICs. The new standard, available from
January 2000, should make it easier to buy software with confidence
and to submit tax returns.
Capital Allowances
Enhanced first year capital allowances on plant and machinery for
SMEs, introduced at a rate of 40 per cent in the last Budget, will be
extended until 1 July 2000. 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.
Encouraging Venture Capital for High Tech
A new #20 million Venture Capital Challenge Competition will be
launched to encourage more investment in young high-tech SMEs with
growth potential. The new venture capital funds will operate
throughout the UK, and will have a strong regional dimension. The
Government will launch a competition to lever in significant
financing from the private sector. The funds will focus on companies
that need small amounts of equity. Venture Capital Challenge will
form part of DTI's Enterprise Fund initiative.
Corporate Venturing
The Government intends to introduce a new tax incentive to promote
corporate venturing in Finance Bill 2000. The Inland Revenue will
publish a technical note on the proposed new measure tomorrow.
Enterprise Management Incentives
New Enterprise Management Incentives will provide tax relief for
certain forms of equity- based remuneration. The Government will
legislate in Finance Bill 2000. The scheme will be targeted on small
higher risk trading companies, with the aim of improving their access
to high calibre management and therefore removing one of the key
barriers to achieving their growth potential.
Employee Share Ownership
A Technical Note outlining a new employee share scheme is published
today. The Government will legislate in Finance Bill 2000. For the
first time, the scheme will allow employees to buy shares in their
company from pre-tax salary as well as receiving free shares. Gains
arising on shares held in the scheme will be tax-free as long as they
are held in the scheme for at least three years.
Science
The Government has announced today an extra #100 million for the
Joint Infrastructure Fund (JIF). This was launched in July 1998 as a
#600 million challenge fund, jointly funded by the Government and the
Wellcome Trust. The additional funding will come from the Higher
Education Funding Council of England. The JIF will renew the capital
base of science, with up to date laboratories and equipment.
The Government has also allocated an additional #15 million to
University Challenge - a seedcorn fund for commercialising university
science. The first round of University Challenge has just been
completed, and there will now be a second round in due course.
National IT Strategy
There are four strands to the Government's #1.7bn strategy to
encourage wider use of computers:
- In the community, #470 million from the Capital Modernisation Fund
(CMF) plus #200 million from the New Opportunities Fund will fund a
network of up to 1000 learning centres. These will be open for 14
hours a day and at weekends, and will allow children, unemployed
and employed adults, older people and start-up SMEs to find out
what IT can offer. They will take on many forms and can be in
schools, libraries, colleges and other centres of learning;
- In business, Finance Bill 1999 will include legislation allowing
people to provide electronic returns. IT changes are underway and
the services are being developed to enable individuals and
businesses to send VAT and self- assessment returns by April 2001,
and employers' PAYE by April 2002, over the internet. The
Government will offer tax incentives to encourage take-up of
electronic filing.
- In the home, computers loaned to employees by employers for
personal use will not be taxed as benefit-in-kind; the CMF will
also subsidise rental for 200,000 low income families;
- In schools, the CMF spend includes support for 100,000 teachers'
purchases of computers for work at home. The Government is already
spending over #750m on the national Grid for Learning.
Individual Learning Accounts
A new national framework for Individual Learning Accounts (ILAs) is
launched today to encourage individuals to take responsibility for
their own training and development. An initial one million accounts
will be opened with the first starter accounts opening in 1999. This
will help generate the skilled workforce necessary to improve
productivity.
From 2000, every adult in Britain will be able to open an ILA. ILAs
will comprise: a 20 per cent discount on training costs of up to #500
a year; an 80 per cent discount on certain key courses, including
computer literacy; and tax reliefs for employers and employees on
employers' contributions to ILAs.
Improving Competition
To stimulate innovation and efficiency, the Government is building on
its efforts to improve competition. Tomorrow the Secretary of State
for Trade and Industry will launch a consultative paper on the
effectiveness of the current legal framework for mergers and
acquisitions. The Deputy Prime Minister will review competition in
airports in following up proposals in the Government's Integrated
Transport White Paper. In addition, starting with industrial and
commercial consumers, the Deputy Prime Minister will review
competition in the water industry.
Two measures are also planned to help retail consumers of financial
services to exercise choice:
- the Financial Services Authority (FSA) will consult by the summer
on plans to publish a family of league tables on savings and
investment products. Initially these will cover private pensions,
endowments, unit trusts and individual savings accounts. These
tables will for the first time make available an authoritative and
reliable source of hard information about the wide choice of
products available on the market;
- DTI will announce tomorrow a package designed to make mortgages
and other credit more transparent and easier to understand. It will
help clarify how interest rates appear in mortgage offers and
advertisements, so that borrowers can more easily compare the cost
of competing loans. The Financial Services Authority will work with
the industry on a disclosure regime which will present key mortgage
information effectively to consumers, with a view to consultation
by the summer.
HM TREASURY PRESS OFFICE
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