Small and medium-sized businesses have been handed a boost in chancellor Alistair Darling's pre-budget report after he deferred a 1p rise in corporation tax due to hit 800,000 small businesses next year.
Alistair Darling said that the corporation tax rate for companies with profits of less than £1.5m would be frozen at 21% until April 2011, postponing the planned 1p increase.
The Chancellor told MPs that he decided to defer an increase in corporation tax for smaller companies to support their growth and investment early in the recovery. Gordon Brown, in his last Budget as chancellor, announced staged increases in the tax, which is charged on profits up to £300,000 a year. It is estimated that the measure will cost the Treasury around £500m and save firms a maximum of £3,000 a year.
Mr Darling also announced that the Enterprise Finance Guarantee - aimed at helping small businesses with turnover of less than £25m a year access money - will be extended for 12 months.
Under the scheme, the government guarantees 75% of a loan and the other 25% is guaranteed by one of 35 participating banks. Since its launch in January it is estimated that over 6,000 businesses have received nearly £700m in loans.
Regarding tax, Mr Darling has said that VAT will rise to 17.5% from 15% from 1 January 2010, but there would be no further changes. It was also announced that all National Insurance rates will rise by a further 0.5% from April 2011, a measure that has been criticised by business groups.
“The Chancellor’s Pre-Budget Report sets out some good schemes to support businesses – like the extension to the Enterprise Finance Guarantee – but these have been undermined by the announcement of an additional hike to National Insurance Contributions in 2011,” said David Frost, Director General of the British Chambers of Commerce.
