§ While overall stability is my main purpose so far as company tax in general is concerned, I believe that, so far as small businesses are concerned, we can expect a significant improvement in industrial performance from some easing of the tax 1200 regime. In my Statement last October, I announced the first changes which were proposed in the tax treatment of small firms and in particular a big increase in the relief for capital transfer tax. I can now outline the firm decisions we have made on the matters which were then under review. My right hon. Friend the Chancellor of the Duchy of Lancaster will be describing these changes in more detail at a Press conference tomorrow.
§ First, I intend to raise the profits limit for the small companies rate of corporation tax from £40,000 to £50,000 and to increase the limit for marginal relief from £65,000 to £85,000. Next I intend to provide that a business man who makes trading losses in the early years of an unincorporated business will be able to set them against income received in previous years. I also propose to give relief similar to that for employees last year to self-employed people and members of partnerships who are resident here and work abroad.
§ We are also proposing substantial relaxations in the capital gains tax rules for small businesses. I intend, as foreshadowed last October, that capital gains tax on gifts of business assets either within a family or to employees should be deferred until the assets are sold. This will be a major help in passing on a business. In addition, I propose that losses on loans and guarantees should henceforward qualify for capital gains tax relief. This will encourage investment in family companies. Finally, I intend to raise the limit for retirement relief from its present level of £20,000 to £50,000. A very large increase is, I think, justified here to help the small business man who has worked hard all his life to build up a modestly successful business.
§ Finally, I am concerned to limit the burden of value added tax on small firms. I am proposing to make a number of changes in the administration of the tax and, in particular, to raise the registration limit to £10,000 and to allow relief against VAT for bad debts in insolvencies. My right hon. Friend the Financial Secretary will give details later in the debate.
§ I am sure that these changes will be welcome. My right hon. Friends and I are still considering what further proposals we can reasonably make to help 1201 small businesses and encourage investment in them.
§ I propose now, however, to give extra help to two particular sectors. First, farmers. I think it is generally accepted that farmers are in a unique position, partly because the weather can produce substantial fluctuations in their income and partly because farming is a highly capital intensive industry requiring substantial investment. I have, therefore, decided to allow farmers to average their incomes for tax purposes when they vary by 30 per cent. or more between two years and to increase the agricultural building allowance in the first year to 30 per cent.
§ Second, the hotel industry. In recent years a substantial increase in tourism has made an important contribution to our invisible export earnings. I therefore propose that any expenditure incurred after today on the construction or extension of a hotel with at least 10 bedrooms should qualify for capital allowances at the rate of 20 per cent. initial allowance and 4 per cent. annual allowance.