Lending restrictions limit benefit of enhanced capital allowances for small businesses
The FLA has calculated that, out of the UK’s 4.7 million businesses, as few as 15,000 – mostly bigger – companies will benefit from the move. This supports research showing that struggling business owners believe the Budget contained little to support them through the recession.
In all, 97% of respondents to the FPB’s post-Budget survey said nothing has been done to ease their burden of costs. In addition, 94% feel that the Budget did not address the issues threatening the survival of their businesses.
Less than 1% of business owners surveyed thought that the Budget was an effective response to the needs of their businesses. Further, 68% said it would prove to be ‘ineffective’ and a quarter that it would prove to be ‘harmful’ to their businesses.
“As with the other measures marketed as ‘business friendly’ in the Budget, doubling capital allowances to 40% will benefit relatively few of the small businesses that are in genuine need of support,” said the FPB’s Policy Representative, Matt Goodman. “Instead, we needed a sustained strategy improve finance, protect employers as well as their staff, reduce costs and stimulate the economy. Millions of small firms are disappointed that this has not been delivered.”
The FLA, which called for a temporary extension of enhanced (100%) capital allowances from the current maximum of £50,000 so that more small businesses could benefit, said that even if the tax incentive were available to companies for just leasing equipment, the number benefitting could increase tenfold. It argues that the extension of capital allowances announced in the Budget will only help businesses investing more than £50,000 which have strong taxable profits. In all, 85% of companies pay less than £10,000 in tax.
The FLA believes that just 15,000 to 45,000 businesses are likely to be considering a large capital investment and have high taxable profits in the coming year, and will therefore benefit from enhanced capital allowances.
The organisation’s Director General, Stephen Sklaroff, called on the Government to do more to help small businesses access alternative finance in order to qualify for tax incentives such as enhanced capital allowances, which are only available to companies deemed to be profitable.
“Last year, our members provided 750,000 SMEs with £15 billion of essential business equipment ranging from delivery vans to photocopiers. If we are to maintain this support during the recession, Government help for the lending markets needs to extend beyond traditional bank loans to asset finance. And the Budget will help only a tiny fraction of UK SMEs unless the Government moves quickly to allow asset finance companies to channel capital allowances to SMEs.”
Further evidence that SMEs are increasingly concerned about cash flow, payments and debtors – seeing them as their second biggest problem after the economic climate – is found in the latest survey carried out for the FLA by the Open University Business School.
Almost half (45%) of respondents said they have not taken out a loan. Of those which do borrow, overdrafts are the most common form of borrowing, followed by other bank loans. But, according to the survey, asset finance like hire purchase and leasing has become increasingly important as lending criteria tighten, rising from 25% of all loans in the third quarter of 2007 to 33% at present. Other findings include:
·Small retailers and construction firms have experienced the sharpest fall in sales, and both sectors have cut jobs. The health, education, leisure and manufacturing sectors performed best.
·The smallest firms, whether measured by turnover or employment, have performed worse than their larger counterparts. Those with a turnover of £100,000 have, on balance, seen their sales fall, while those with a turnover of half a million or more have more often seen sales rise.
·Looking ahead, pessimism about sales is most marked in the agricultural, transport/travel and wholesale sectors.
Worsening economic conditions mean that more small firms have needed extra capital over the past year to manage cash flow or bad debts than to fund growth.