By Chris Langridge and Rachel Butler, Cripps Harries Hall LLP
With the gloomy state of affairs in the economy, and speculation that the country is about to experience its first ‘triple dip’ recession, the Chancellor George Osborne needs to provide incentives and stability to small to medium sized enterprises (SME’s) when he delivers his fourth coalition Budget in order to give confidence for recovery and growth, to bring to an end the longest period of economic stagnation for a century, and create jobs.
Speculation about what measures the Budget will contain to improve the outlook for smaller businesses is in full swing, with forecasts on tax reductions and reliefs and incentives for investment being the main focus.
The planned reduction in corporation tax to 21 per cent from April 2014 has led to an expectation that a further cut may be on the cards this year, perhaps with a further corporation tax rate reduction specifically for small businesses to 20% or lower. The Chancellor is believed to aspire to bring the rate down to 20%.
The Autumn Statement increased the Annual Investment Allowance for a two year period from 1 January 2013 to £250,000. An extension of this allowance, for expenditure on plant and machinery, would encourage further investment going forward.
Changes to R&D relief, profits from patents and an extension to entrepreneurs’ relief have already been announced, so it is unlikely that there will be any further reforms in these areas.
However, an extension to the Seed Enterprise Investment Scheme is expected, subject to the necessary EU approvals being obtained. The Seed Enterprise Investment Scheme aims to simulate entrepreneurship and kick start the economy by encouraging financing in smaller businesses, as it offers tax relief to individuals who invest in start-ups. A widening to the availability of Venture Capital Trusts could also be announced to boost financing and fundraising for SME’s.
The 3p increase in fuel duty scheduled for January was cancelled by the Chancellor but it is widely expected that he will confirm plans to increase the duty in September, which will be a blow to a number of small businesses, which are already struggling with rising costs.
Many businesses would like to see an increase in infrastructure spending by the Government. This could produce more jobs in the short term and increase the competitiveness of the UK in the future. Those businesses would also welcome a reduction in VAT following the increase to a 20% rate in 2011 but it seems unlikely that the Chancellor will touch this in the Budget.
All businesses would welcome a reduction in the burden of business regulation but it is unclear if this will be addressed by the Chancellor.
If the delivery of the Budget tomorrow provides sufficient incentives to boost the confidence of both businesses and investors, then the economy will have a greater chance of improving. The Chancellor must take the opportunity in the Budget 2013 to re-build confidence and inject optimism to encourage growth in UK business.
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