Small Businesses (Hansard, 22 June 2000)

§ Mr. Timms

The Government have dramatically improved the fiscal environment for investment in and by small businesses.

Since May 1997, the smaller companies Corporation Tax rate has been reduced from 23 to 20 per cent., and a new starter rate of Corporation Tax has been introduced which benefits companies with profits of up to £50,000. Small and medium sized companies have also benefited from the abolition of Advance Corporation Tax and the payment of CT in arrears.

To encourage investment by small and medium sized enterprises, the Government have now made permanent at 40 per cent. the enhanced first year capital allowances for plant and machinery, first introduced in the July 1997 Budget. This year the Government are also introducing a 100 per cent. first year allowance for small firms' investment in information and communication technology. This measure is designed to accelerate the take up of new e-commerce practices, and will operate for three years.

To encourage small and medium sized companies to invest in innovation through research and development, this year's Finance Bill introduces a new R&D tax credit. This provides cash flow support to companies investing in R&D even before they are paying CT, and increases the tax allowance for current spending on R&D from 100 to 150 per cent.

To encourage investment in the growth of small businesses, the Government have significantly enhanced the incentives for individuals to make such investments via reforms to Capital Gains Tax. Gains on any shareholdings in unquoted companies will now be taxed as business assets on a shorter four year taper, with the final effective rate for higher rate taxpayers now down to 10 per cent. This year's Finance Bill also introduces improvements to the operation of the Enterprise Investment Scheme and Venture Capital Trust scheme (notably reducing from five to three years the minimum holding period for access to income tax reliefs). These changes will further enhance the incentives for individuals to invest in smaller higher risk trading companies.

The Government are also creating new fiscal incentives for UK companies to invest as corporate venturers in smaller growing companies. This year's Finance Bill introduces a new Corporate Venturing Scheme, which provides relief against Corporation Tax for minority equity investments made in eligible higher risk companies for a minimum of three years.

Finally, to enable smaller higher risk trading companies to recruit and retain more easily the key employees which they need to deliver their growth potential, this year's Finance Bill introduces a new Enterprise Management Incentive scheme. Under this measure, eligible companies 293W will be able to offer tax-advantaged options over shares worth up to £100,000 (at the time of option grant) to up to 15 employees.