A welcome budget for small enterprise
Simon Rogerson - 22 June 2010
The Budget has brought few real surprises. Mixed news for investors, with CGT rises albeit less than expected, but some really good news for small and growing businesses. As an investor in this sector, we are happy to see some of the pro-small business measures announced earlier today. And for our investors whose money is held in smaller company portfolios (whether in Venture Capital Trusts, Enterprise Investment Schemes or AIM portfolios), this bodes well for the future.
The CGT change was less drastic than had been expected, with some commentators having predicted an increase to 40% or even 50%. Instead, the Chancellor announced that the rate of CGT will be 18% for those whose total taxable gains and income are less than the upper limit of the income tax basic rate band. A rate of 28% will apply for gains above that limit.
The announcement of a reduction in corporation tax from 28% to 24% over the next three years is also to be welcomed, as is the reduction in the smaller companies' tax rate to 20%. The lifetime limit on gains that qualify for Entrepreneurs' Relief (and are taxed at 10%) has been increased from £2m to £5m.
In essence, the announced changes are supportive of the two sides of the SME market. For established, growing businesses, the measures will allow more money to be left within businesses (rather than leaking out through corporation tax), thus encouraging reinvestment and enabling growth. For younger, new businesses, the increase to the Entrepreneurs' Relief limit on taxable gains will incentivise entrepreneurs and support the start-up end of the market. It is very encouraging that the Government has recognised the importance of supporting and growing new companies - a key driver of employment and revenues in an economy coming out of recession.
The Government is also going to examine the proposals set out in the Dyson Report published a few months ago, which set out the views of James Dyson on, amongst other things, how to stimulate the availability of capital for smaller companies. Again, it is our view that any measures to support small UK companies are good for the economy as a whole, and good news for investors in our products that feature smaller companies.
The increase in VAT (from early next year) to 20% is not a great surprise, and reflects the Chancellor's belief that everyone should contribute to reducing the size of the deficit. While some may feel this is a regressive measure, its impact on the lower paid is softened by the increase in the income tax threshold to £7,475.
On balance, given the difficult economic backdrop, this came across as a fair and largely uncontroversial budget, but one which we welcome warmly as a budget for small and growing enterprises.
