Pre-Budget Report 2008: the effects on business

27 November 2008

With businesses concerned about cash flow, the Chancellor introduced a number of tax changes and support measures, totaling some £7 billion, aimed at easing the burden on smaller firms in particular.

The planned increase in the small companies’ rate of corporation tax, from 21 per cent to 22 per cent, has been put back and will stay at 21 per cent during 2009/10.

The threshold at which an empty property becomes liable for business rates is increasing temporarily. For the financial year 2009/10, empty premises with a rateable value of less than £15,000 will be exempt from rates.

Businesses that find themselves struggling to pay VAT, corporation tax, PAYE, income tax and NICs will be able to make use of a new HM Revenue and Customs service. The Business Payment Support Service, which is based on the existing ‘time to pay’ scheme, means that firms facing temporary financial problems can negotiate spreading the payment of tax bills over a manageable timeframe. Interest will still be paid on outstanding NI, income tax and capital gains tax debts at 5.5 per cent, and on corporation tax at 4.25 per cent as from 6 December. The aim is to allow firms to reschedule their tax debts rather than borrow money.

To help businesses that have recently made losses, trading loss carry-back will be extended on a temporary basis from one to three years for up to £50,000 of losses.

No legislation is to be introduced on income shifting in the 2009 Finance Bill, but the issue is to be kept under review. The Treasury said that it still regarded as “unfair” the practice of husband-and-wife businesses artificially allocating profits to each other, when one of the owners is responsible for generating more of the profits and is liable to a higher-rate tax charge, in order make use of basic tax rate bands. However, given the economic climate the government will not now be bringing forward any legislation on the matter.

Business support

The credit crunch has seen many small firms struggling to gain access to funding. In response, the Chancellor proposed a package of measures to improve the levels of funding available to cash-starved firms.

Early next year, the government is to set up a Small Business Finance Scheme, a temporary programme that will guarantee £1 billion of public money to encourage banks to lend to businesses. The scheme will cover loans from £1,000 up to £1 million.

Another £1 billion will be made available to the Export Credits Guarantee Department, in conjunction with the banks, to provide smaller exporters with easier access to short-term working capital.

Over the next six months, Regional Development Agencies (RDAs) will offer loan funds totaling £50 million directly to healthy and viable SMEs that have encountered financing problems.

A quarter of the £4 billions’ worth of loans from the European Investment Bank to promote small business lending has been allocated to seven UK banks, with the money available at the end of the year.

Other measures include a £50 million fund that will allow banks to convert business debt in equity.