There is little doubt that the Emergency Budget was one of the most severe in modern British history, one that saw the introduction of tax increases, for example to VAT, and reductions in public spending. That considered, the Chancellor did announce specific initiatives that would be of interest to the entrepreneurial community.
For instance, the extension of the enterprise finance guarantee (EFG) scheme is expected to be applauded by SMEs in the UK. The EFG scheme is an initiative offered through the UK Department for Business Enterprise & Regulatory Reform (BERR) and guarantees lenders 75% of loans between £1,000 and £1,000,000, meaning that qualifying businesses can have access to working capital at a lower level of security. This week's proposals will see the EFG scheme increase by £200 million to support additional lending of up to £700m until 31 March 2011 and should help 2,000 businesses.
Other business finance initiatives included the creation of the Growth Capital Fund, which is being implemented to support small businesses with high growth potential. The fund will form part of the current £237m programme of Enterprise Capital Funds and may provide an additional £37.5m in equity finance. Funding for this programme will be achieved through a £25m Government contribution and a £12.5m private co-investment.
The Chancellor announced that new businesses established outside of
London, the south-east and east of England will now be exempt from up
to £5,000 of employers National Insurance contributions
Changes to the capital gains tax regime for small businesses should also be welcomed. Currently, entrepreneurs' relief, which allows qualifying capital gains to be taxed at a lower rate of 10% is applicable to the first £2 million of lifetime qualifying gains. However, the threshold has now been extended to the first £5m. The downside is that the overall increase in the capital gains tax rate to 28%, up from 18%, will mean any gains in excess of this limit will now be taxed at higher rates. SMEs are likely to be happy about other tax moves like the small profits rate reduction to 20%, given original plans to increase it to 22% from April 2011.
The Chancellor announced that new businesses established outside of London, the south-east and east of England will now be exempt from up to £5,000 of employers National Insurance contributions for each of the first ten employees hired in the first year of business. This will be cheered by many new start ups, but could attract some negative attention from those businesses in excluded areas. The measures are expected to be in place by September, but new businesses setting up now should also benefit.
Additionally, the Annual Investment Allowance, which relates to relief on capital expenditure on most plant and machinery, excluding cars, has been cut by 75% to £25,000 from 2012 - an interesting move considering that it was raised from £50,000 to £100,000 in the March Budget.
The Government plans to promote small business procurement by publishing central Government tenders online for free, which is due to become available by the end of 2010, comes as part of the Coalition's push for greater transparency in the way that it does business. The Chancellor has also indicated the Government's commitment to reviewing IR35 or rules surrounding contracting issues and small business tax, however, details for this have yet to be published.
Proposals like those announced this week will hopefully help SMEs and encourage their continued contribution to UK economic growth, whilst supporting job creation and generating industry innovation.
