Budget 2017: Tax breaks for SMEs key to PM’s productivity drive

Four key Budget changes to encourage investment in SMEs and PM's productivity drive.

The government has been urged to make four key changes in the March Budget to encourage SMEs to make long-term investment plans for growth by Funding Options, the online business finance supermarket.

Theresa May has often linked investment in business technology to Britain’s long standing productivity problem, and Funding Options says that the Chancellor can make four simple changes to incentivise SME investment:

Raising the Annual Investment Allowance (AIA), back to £500,000. The AIA is the amount of expenditure on plant and machinery that companies can claim against their corporation tax bills. The AIA was cut permanently from £500,000 to £200,000 in January 2016.

Raise the level of Enhanced Capital Allowance (ECA) to 105 per cent from 100 per cent and extend it to investments in software for SMEs. ECA currently allows a business to claim 100 per cent of the cost of certain energy-saving assets, such as solar thermal systems and pipework insulation, against taxable profits.

Introducing a tax system in which partnerships can benefit from R&D tax credits. These allow companies to receive tax benefits proportionate to their R&D spending, but LPs and LLPs are excluded from the system.

Extending the Business Premises Renovations Allowance (BPRA), which is due to end by April this year. The BPRA is a 100 per cent tax allowance for business converting or renovating empty existing business premises in a ‘disadvantaged area.’

Conrad Ford, CEO of Funding Options, says, ‘The government has been talking for long enough about the productivity gap and must seize the chance to follow through on its words.’

‘The tax system for SMEs needs to be realigned to boost investment, productivity, and growth.’

‘Big business will always have cash to pump back into their business, but more attention needs to be paid to smaller companies.’

Funding Options says the central measure the government should focus on is increasing the Annual Investment Allowance to £500,000 – the level it was at from April 2014 to December 2015. The government cut the AIA to £200,000 in January 2016 and investment by businesses using it fell 15 per cent.

Ford adds, ‘Some of the most important sectors in the UK are driven by partnerships – the UK’s legal industry, for example – that R&D credits don’t apply to. The government should look into providing incentives for the legal sector and other professions to help ensure they maintain their position as global leaders.

‘Extending the BPRA could kill two birds with one stone. Provide motivation for companies to invest in business space and growth, and prevent valuable space going to waste at the same time.’

Further reading on productivity

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

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