April 17 2002
(See
the full text of the Chancellor's speech here!)
SUPPORTING SMALL BUSINESSES AND ENTREPRENEURS
Budget 2002 is a Budget for enterprise - small businesses
received a
further boost today as the Chancellor announced a package of
measures
to cut taxes and reduce compliance costs, promoting entrepreneurial
spirit and supporting new business start-ups.
The package will offer reductions in tax and compliance cost
burdens
for up to 900,000 businesses in the UK. It includes:
- cutting the corporation tax starting rate from 10 per cent
to zero,
meaning that 150,000 companies will no longer pay any corporation
tax;
- cutting the small companies' rate from 20 per cent to 19 per
cent,
benefiting over 335,000 additional companies;
- measures to ease the impact of VAT on small business including:
- an increase in the VAT registration threshold to #55,000,
keeping
4,000 businesses out of the VAT net;
- an optional flat rate scheme, which will allow 500,000 small
firms
to cut their compliance costs by up to #1,000, and will be extended
to 200,000 more small firms with turnovers up to #150,000 next
April;
- the removal of automatic penalties for all those firms with
turnovers of up to #150,000, who will instead first be offered
help
and advice when they are late with their VAT payments;
- reforms designed to make it easier for businesses to join
the VAT
annual accounting scheme, and to recover VAT on bad debts; and
- the introduction next year of a targeted scheme to allow approved
importers to delay accounting for VAT on their imports,
significantly cutting compliance costs and improving cashflow.
- implementing a three-stage move towards universal electronic
filing
of employer PAYE returns, with financial incentives to encourage
small employers to make greater use of IT, as recommended by
the
Carter Review of Payroll Services;
- a cut in beer duty for small brewers from June 2002, offering
a 50
per cent cut in duty for those producing up to half a million
litres and duty savings worth over #120,000 for breweries producing
up to 3 million litres of beer per year. In total, 9 out of
10
breweries will benefit from the scheme;
- providing greater flexibility for Venture Capital Trusts (VCTs)
by
enabling VCTs to merge or be wound up without investors losing
tax
reliefs;
- announcing today successful bidders for pilot projects to
help
small firms get 'investment ready' by improving their ability
to
attract external finance to meet their growth aspirations;
- modernising the way the Construction Industry Scheme deductions
are
set off against tax liabilities during the year to improve the
cash
flow of around 20,000 companies in the construction industry.
For more information, see
Press Notices
REV/C&E1 A modern and competitive business tax system
REV 1 Inland Revenue tax rates and allowances for 2002-03
C&E 1 Alcohol and tobacco duties
DETAILS
The package of measures includes:
- Cutting corporation tax
- Cutting the starting rate of corporation tax from 10 per cent
to zero and the small companies' rate from 20 to 19 per cent.
From
1 April 2002 companies with profits of up to #10,000 will benefit
from a zero starting rate of corporation tax and those with
profits
between #10,000 and #50,000 will benefit from the reduction
in the
starting rate through marginal relief. Companies with profits
between #50,000 and #300,000 will have their rate cut from 20
per
cent to 19 per cent and those with profits of between #300,000
and
#1,500,000 will benefit from this change through marginal relief.
Overall, these changes will benefit around 485,000 smaller
companies. An average small company will save around #700 a
year
(see press notice REV 1 for further details).
- The Inland Revenue is also considering the compliance implications
for companies, clubs and associations within the zero rate band
and
will be issuing guidance in due course.
- Simplifying corporation tax
- Small businesses will also benefit from consultation on the
wider
reform of corporation tax looking at rationalising the schedular
system, the scope for greater alignment between the treatment
of
investment and trading companies and the case for bringing the
remaining taxable gains made by companies into an income regime
(see press notice REV/C&E1 for further details).
- Simplifying VAT for small businesses
- The annual taxable turnover limit, which determines whether
a
person must be registered for VAT, will be increased in line
with
inflation to #55,000, keeping 4,000 small businesses out of
the VAT
net and maintaining the UK's VAT registration threshold as the
highest in Europe;
- A new optional flat rate scheme will simplify the way small
businesses account for VAT. Businesses with a taxable turnover
up
to #100,000 will no longer have to keep records of the VAT charged
on each individual purchase and sale and will instead be able
simply to calculate their net VAT liability by applying a flat
rate
percentage to their total turnover. This will offer compliance
cost
savings of up to #1,000 per year for more than 500,000 businesses,
including at least:
- 32,000 small manufacturers;
- 15,000 agricultural businesses;
- 22,000 transport companies; and
- 11,000 pubs.
- The Government intends next year to extend the flat rate scheme
to
200,000 additional businesses with turnovers up to #150,000.
From
next year, the Government will also ensure that all businesses
with
turnovers up to #150,000 will first be offered advice and support
when they are late with their payments, rather than having to
face
automatic fines.
- Changes to simplify the VAT annual accounting scheme will
include
simplifying the payment patterns for all participants in the
scheme
and removing the existing 12 month qualifying period before
firms
can join the scheme for businesses with an annual turnover of
up to
#100,000.
- The arrangements for VAT bad debt relief will be simplified,
removing the requirement for supplier business to send letters
to
their debtors notifying them that they are claiming relief.
- Following consultation, a scheme will be introduced next year,
for
approved importers with sustained compliance records, removing
the
requirement to pay the VAT due on imports up front, a requirement
currently estimated to cost UK importers #175 million per year
in
compliance and cashflow costs.
- Implementation of the Carter Review recommendations on payroll:
- Following publication of Patrick Carter's Review of Payroll
Services at the Pre-Budget Report, ministers invited comments
on
the detail of the recommendations. The consultation showed general
support for the principle of greater use of information technology
to help employers manage the task of dealing with payroll, although
some concern about the requirement for e-filing by small employers.
The responses also endorsed the proposals that the Inland Revenue
should encourage employers to deal with Government electronically
and should improve the support it offers to employers.
The Government is therefore proposing a three stage move towards
e-filing:
- Employers with 250 or more employees will be required to file
electronically from 2004-05;
- Employers with 50 or more employees will be required to file
electronically and beginning with the year 2005-06;
- The incentive payments recommended by the review to encourage
smaller employers with fewer than 50 employees to file
electronically will begin from 2004-05 at the level of #250,
tapering to #75 by 2008-09. The Government proposes that electronic
filing of employer returns will become a universal requirement
from
2010 for the filing of 2009-10 returns;
- To support business in the switch to using new technology,
the
Inland Revenue will be expanding the payroll support given by
Business Support Teams and the employers' helpline. These teams
offer one to one visits to new and small business to help and
give
advice on all aspects of business requirements for tax and NICs.
The Inland Revenue will also introduce further enhancements
to its
website.
- A partial Regulatory Impact Assessment has been prepared and
is
available on the Internet at www.inlandrevenue.gov.uk.
Small brewers
- A cut in beer duty for small brewers will be introduced from
June
2002 to support the nation's traditional small brewing industry.
Brewers producing up a half a million litres will enjoy a 50
per
cent cut in duty, equivalent to #40 off each barrel they produce.
All brewers producing up to 3 million litres of beer per year
will
enjoy a cut in duty. In total, 9 out of every 10 of the nation's
breweries will benefit from the scheme including all micro and
regional brewers, the majority of which are based in rural areas
(see press notice C&E1 for further details).
- Encouraging entrepreneurship
- Providing greater flexibility for Venture Capital Trusts (VCTs).
With effect from today there will be greater flexibility for
users
of the VCT scheme. New provisions will give flexibility to VCTs
and
their investors to consider options on being wound up or merged
from a commercial standpoint rather than with regard to the
tax
implications.
- Helping firms become 'investment ready'. The Government is
committed to improving the ability of entrepreneurs to make
use of
risk capital by ensuring that more know how to access it and
understand its benefits. The Government is today announcing
successful bidders to run six pilot projects to inform small
firms
about their financing options and offer a programme of support
to
help them become 'investment ready'.
Changes to the Construction Industry Scheme
- From 6 April 2002 companies operating as subcontractors in
the
Construction Industry Scheme (CIS) who receive payments net
of CIS
deductions will benefit from new arrangements that will improve
their cash flow. Companies who have deductions made from their
income as subcontractors will no longer have to wait until the
end
of their accounting period before they can set off these deductions
against other liabilities. The deductions can now be set off
against PAYE and NICs and any CIS liabilities due from employees
and subcontractors they engage.
- This will particularly help small and medium sized companies
who
have little or no corporation tax liability as well as companies
for whom construction is a small part of their activity. Around
20,000 small and medium sized companies will benefit from this
measure.
- A Regulatory Impact Assessment has been prepared and is available
on the internet from www.inlandrevenue.gov.uk.
NOTES
The Venture Capital Trust (VCT) scheme started on 6 April
1995. It
offers a range of tax reliefs for individuals investing up to
#100,000 per tax year in VCTs which are quoted companies that
invest
in small unquoted higher risk trading companies.
The Inland Revenue's employers' helpline, offering support to
new and
small business, can be reached on 0845 7143143.
HM TREASURY PRESS OFFICE
Non-media enquiries: 020 7270 4558
INLAND REVENUE PRESS OFFICE
Non-media enquiries: 020 7944 3000
(office hours only)
GOVERNMENT DEPARTMENT INTERNET SITES
Further information and all published documents relating to
Budget
2002 may be found on the Internet at the following addresses:
HM Treasury www.hm-treasury.gov.uk
Inland Revenue www.inlandrevenue.gov.uk
HM Customs and Excise www.hmce.gov.uk
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