The Chancellor, George Osborne, delivered his Budget yesterday, but what does the Budget mean for Small and Medium Enterprises (SMEs) and will it do anything to stimulate growth?
The main rate of Corporation Tax will be cut by a further 1% to 20% from April 2015, thereby giving the UK the lowest business tax rate in the Western world. This may encourage business set up in the UK, but does little to help to the smallest companies already in the UK as it will only affect companies with profits of more than Â£300,000. The rate for small companies remains at 20%. It is not clear why their rate has not also been reduced?
From April 2014, all business and charities will be entitled to an allowance of Â£2,000 per year to be set off against their National Insurance (NI) bills. This means that around 450,000 small businesses will pay no employer NI at all. The move is only a small concession for larger companies and a cut in the rate of NI overall might have done more to prompt growth through new recruitment.
Transport and Infrastructure:
The Government has announced that it will invest an extra Â£15 billion for new road, rail and construction projects by 2020, starting with Â£3 billion in 2015-16.
Seed Enterprise Investment Scheme (SEIS):
The Government has announced an extension to the SEIS reinvestment relief. As I have previously blogged about, SEIS is a scheme that was announced in 2012, aimed at encouraging investment in very early stage small companies by offering a range of tax reliefs to individual private investors who subscribe for equity shares in those companies.
Currently, SEIS reinvestment relief provides an exemption from capital gains tax (CGT) for gains on disposals of any assets made in 2012-13 if a SEIS qualifying investment is also made in 2012-13. Legislation will be introduced in the Finance Bill 2013 to extend the exemption to gains accruing in 2013-14 provided they are re-invested in SEIS qualifying shares in 2013-14 or 2014-15. However, the exempt amount is half the qualifying re-invested amount.
Tax-advantaged Share Schemes:
As announced in December 2012, the Finance Bill 2013 will include legislation to simplify tax-advantaged share schemes (for example: Share Incentive Plans (SIP); Save As You Earn Options Schemes (SAYE); Company Share Option Plans (CSOP); and Enterprise Management Incentives (EMI)), following the Office of Tax Simplification’s (OTS) review of tax-advantaged share schemes. The main objective is to move away from a requirement for HMRC approval and move towards a self-certification of schemes by businesses.
This should remove some of the bureaucracy and cost involved in implementing these schemes, to enable more employers to consider allowing their key-people into partial ownership of their business, but we will have to wait for sight of the detailed proposals on exactly how this will work.
EMI Options and Entrepreneurs Relief:
As announced in the 2012 Budget, the Finance Bill 2013 will relax the rules relating to capital gains tax entrepreneurs relief for shares acquired through EMI options, by dis-applying the normal requirement for the seller to hold 5% or more of the shares of the company at the time of disposal.
The planned 3p per litre fuel duty increase from September 2013 has been scrapped.
As predicted, given the intense media pressure on the Government, a significant crackdown on offshore tax evasion, tax avoidance and aggressive tax planning has been announced. The Government aims to introduce legislation in this area in the Finance Bill 2014.
As an adviser to many SMEs in the UK, I would say that the overall effect that the Budget will have on SMEs will be minimal, albeit the National Insurance exemption and the extension of Entrepreneurs Relief to EMI shares are steps in the right direction.
If we are to achieve growth, SME business owners need to regain confidence in our economy generally and more still needs to be done to encourage the banks to provide the funding which is now supposed to be there.
If you would like to know how the Budget directly affects you and your business, please do not hesitate to contact me or one of our team of business solicitors.
By Debbie King, Company Law Solicitor