Pre-Budget Report: Shot in the arm for SMEs

HARD-pressed small businesses were given a shot in the-arm by Chancellor Alistair Darling as he extended the Enterprise Finance Guarantee scheme and time to pay rules.

The EFG scheme was launched in the eye of the financial crisis to help credit-starved small firms wishing to grow.

 Mr Darling extended the scheme – which sees the Government guaranteeing 75% of loans to small firms with turnover of £25m or less – by six months to September 2010.

The Chancellor extend  the “time to pay scheme”, which allows small companies to spread tax payments over a longer period – for “as long as it is needed”.
Since its launch a year ago, more than 150,000 businesses have deferred £4bn of tax.

A spokesman for the British Chambers of Commerce said measures that increased liquidity or the availability of credit were essential at times like these when many small funds were struggling under the weight of recession. “Credit is the cornerstone of any well-run economy,” he said.

The Federation of Small Businesses welcomed plans to set up a national investment corporation, to be funded via £500m of contributions from banks and other financial institutions and designed to supply capital to the small- and medium-sized business sector.

A spokesman said: “We have been calling for more accessible routes to credit for some time, so a new fund that makes credit available specifically to small firms is a very welcome step.

“The Government must ensure that any new lending initiative must be available to those high technology small firms with innovate ideas that want to grow but need the finance to do so.”

Two significant tax measures to support research and development and innovation and stem the flow of income from these activities to offshore regimes were also revealed.

The Chancellor has introduced two significant tax measures to support research and development and innovation and stem the flow of income from these activities to offshore regimes.

“This is a welcome introduction but not for another four years begging the question of whether companies will decide to leave the UK before then,” said Terry Jones, tax partner at BDO Leeds.

The introduction of a patent box which will enable a corporation tax rate of 10% to be applied to income derived from specific new patents in the UK from April 2013. 

“This will be targeted to certain innovative industries possibly including pharmaceuticals, bio technology companies and aerospace industries,” Mr Jones said.

“This 10% patent tax rate is aligned with Netherlands, however Ireland offers total exemption from tax for qualifying patent income. It is hoped that the legislation will not be unduly complex and follow overseas models for this relief .

Another new measure includes SMEs no longer having to own IP attributable to their R&D to benefit from the R&D tax credit scheme.

This change will have effect for expenditure incurred by an SME company on R&D in an accounting period ending on or after today.

Russ Cahill, tax director at BDO in Leeds, said: “A new Capital Growth Fund has been announced for SMEs, albeit there are few details yet available. It is critical that the criteria for this fund are properly targeted to be of assistance to those firms that need it, a criticism levied at other similar schemes in the past which have been of very limited impact.”

He said over the last 12 months more than 17,000 businesses in the Yorkshire region have agreed ‘time to pay’ arrangements in relation to their tax liabilities with HMRC with a value of £300m.

Mr Cahill said: “The Chancellor has announced today his intention to extend the scheme indefinitely, acknowledging that this also increases the revenue to HMRC as companies are able to continue to trade thus generating monies to meet their tax liabilities – indeed over £3bn of the £4bn has already been repaid.

“On the face of it this is good news for Yorkshire businesses. However, in our experience HMRC has taken a toughening stance in recent months and there is no indication today that this will change.”

He said the small companies rate of corporation tax would remain at 21% until 2011, the lowest rate of corporate tax in the G7.

“It will be a welcome announcement for Yorkshire businesses as it maintains a relatively low tax environment for small and mid corporates.”

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