BOOSTING INVESTMENT AND GROWTH FOR SMALL BUSINESSES

A package of measures to encourage investment and growth in small businesses, helping make Britain one of the most competitive business environments in the world, was announced by the Chancellor today.

The package, which contains measures designed to cut compliance costs for over one million small businesses and to provide a flexible service to businesses in difficulty, includes:

enhancing Enterprise Management Incentives by doubling the gross asset limit for qualifying companies, to £30 million. A Statutory Instrument will be laid before Parliament immediately to take effect from 1 January 2002;
further measures to be introduced during 2002 to ease the impact of VAT on small and medium enterprises, including;

- an optional flat-rate scheme designed to cut compliance costs for more than 300,000 businesses by up to £1,000 a year;

- changes to simplify and increase participation in the VAT annual accounting scheme, which offers improved cash-flow and lower compliance costs to around 900,000 businesses; and

- the introduction of an outreach business support programme, to offer proactive advice and support to businesses before they get into difficulties;

publication of the Carter review of the provision of payroll services for new and small businesses and consultation on the review's proposals;
· publication of a prospectus for £50 million of early growth funding to help improve access to finance for over 1,000 businesses;
further consultation on specific options to simplify the tax regime for small businesses through aligning profits for tax purposes more closely with those reported in their accounts; and
confirmation of the Government's June 2001 commitment to extend the 10 pence starting rate of corporation tax - the lowest in the European Union - from Budget 2002, to further reduce the corporation tax bills of smaller companies.

This Pre-Budget Report also builds on the Government's radical reform of the corporate tax regime.

For more information, see the following Press Notice:

Internal links

REV/ HMT 3 Enterprise and Innovation - the key to a Modern Business Environment

DETAILS

Enterprise Management Incentives

The Pre-Budget Report confirms an increase to £30 million in the gross asset limit for Enterprise Management Incentives (EMIs). A Statutory Instrument will be laid before Parliament immediately. This will take effect from 1 January 2002:

building on the success of the EMI scheme and providing up to 6,000 more small companies with incentives to recruit and retain staff;
helping, in particular, small, dynamic manufacturing enterprises, which are more likely to have assets in excess of the current £15 million limit.

Simplifying the Tax Regime

The Government intends to consult business on specific ways of simplifying the corporation tax computation of small companies, while maintaining incentives and fairness. This is in response to comments received following the publication of the technical note "A review of small business taxation" issued in March 2001.

The Carter Review

In June 2001, the Government appointed Patrick Carter to conduct a review of the provision of payroll services for new and small businesses and to consider the case for further action.

The Government is today publishing the review, which concluded that greater use of information technology is the key to enabling businesses to deal with the complexity of payroll obligations. The review recommends :

a requirement for large employers (with 50 or more employees) to send their end-of-year returns to the Inland Revenue electronically by 2004 and for smaller employers by 2007; and
cash incentives for smaller employers to encourage electronic filing of end-of-year returns with the Inland Revenue for a period of 5 years.

The Government believes that the review sets out a challenging but attractive package of measures to help employers meet their payroll obligations. In principle, the Government endorses the review's recommendations, but believes the issues raised would benefit from wider debate. The Government is therefore inviting comments on the detail of the recommendations by 31 January 2002.

NOTES FOR EDITORS

Enterprise Management Incentives (EMIs) are tax-advantaged share options designed to help smaller, independent, higher risk companies recruit and retain employees with the skills that will help them grow and succeed. They are also designed to reward employees for taking a risk by investing their time and skills in helping small companies achieve their potential:

Under EMI tax-advantaged options over shares with a market value of up to £100,000 may be granted to any number of employees of a company subject to a maximum share value of £3 million. For companies to qualify they must currently have gross assets not exceeding £15 million - for groups this applies to the assets of the group as a whole. More detailed information on the qualifying conditions for EMI can be found on the Revenue's website at the link below:

External links

Inland Revenue website: EMIs

On 18 June 2001 the Chancellor announced consultation on doubling the gross assets limit in response to representations that the current limit prevents some companies in the higher risk sector from participating in EMIs. The results of the consultation show that there is unanimous support for increasing the limit.

The Government will consult further on specific ways of simplifying the tax computation for small companies, through aligning profits for tax purposes more closely with those reported in their accounts.

This builds on a technical note "A review of small business taxation", published by the Inland Revenue in March 2001. This note considered the scope to reduce compliance costs for small companies by aligning their corporation tax profits with their accounting profits.

Almost all respondents were pleased with the Government's approach to consulting on alignment. While reducing corporation tax compliance burdens was seen as an important issue, respondents often highlighted reducing the costs of payroll administration, which has been the subject of Patrick Carter's review, and tax cuts, where the Chancellor has restated his commitment to widen the 10p corporation tax starting rate band.

Respondents were keen to maintain incentives but also identified a number of possible areas where greater alignment could bring simplification. The Inland Revenue will be consulting further to explore whether these could offer regulatory savings while preserving incentives, maintaining fairness and guarding against tax loss. Further information on this consultation is included in the summary of responses which has been placed in the House of Commons and may be obtained by post from:

Inland Revenue (public enquiry centre),
South West Wing,
Bush House,
The Strand,
LONDON, WC2B 3NR.

It may also be downloaded from the Inland Revenue Internet site via the link below.

External links

Inland Revenue website: review of small business taxation

Following consultation over the summer on further ways to ease the burden of VAT on small businesses, the Government has decided to introduce a new optional flat rate scheme for businesses with a taxable turnover of up to £100,000 a year. Traders who join the scheme can avoid having to account internally for VAT on all the individual goods they buy and sell and can instead simply calculate their net VAT liability as a percentage of their total turnover, including their exempt income.

The Government will also introduce reforms designed to simplify and increase participation in the VAT annual accounting scheme. This scheme allows the 900,000 businesses with a turnover of up to £600,000 a year to file their VAT returns annually rather than quarterly, improving their cash flow and reducing their compliance costs. These reforms include:

simplifying the payment patterns for participants in the scheme; and
removal of the existing 12 month qualifying period for businesses with annual turnover of up to £100,000.

As promised in the Chancellor's Productivity and Enterprise statement in June, HM Customs and Excise are pressing ahead with reforms to the VAT penalties system. These will ensure that small businesses are first offered advice and support when they are late with payments, rather than facing an automatic penalty.

Business Support Programme

HM Customs & Excise will be introducing an outreach business support programme. This will be developed in light of the advice and practical assistance given by the revenue departments to more than 21,000 businesses affected by the outbreak of Foot and Mouth Disease (FMD).

The 10 pence corporation tax starting rate is currently payable on annual profits of up to £10,000, with marginal relief (from the 20 pence small companies' rate) available where profits fall between £10,000 and £50,000. In his statement on 18 June 2001, the Chancellor announced that the 10 pence corporation tax rate band would be widened.

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GOVERNMENT DEPARTMENT INTERNET SITES

Further information and all published documents relating to the Pre-Budget Report may be found on this website and at the following addresses: