A capital idea? A change of approach to helping small firms to increase their Fin vestment

Linus Pardoe

NB: The AIA is the Annual Investment Allowance, which enabled businesses to write-off 100% of the costs of qualifying investment in the year it was undertaken against tax, up to the value limit of the AIA in the relevant tax year. [...] So too, is the macroeconomy and the state of demand in particular, as well accessibility to adequate external finance (where sought), the investment practices of (any) external investors and the availability and cost of an appropriately skilled workforce. [...] The latter has included the ability to charge interest on overdue monies and the creation of the Prompt Payment Code (which is soon to be replaced by the Fair Payment Code) and the Small Business Commissioner to oversee it.95 xxiii Ultimately, this piecemeal approach has not xxiii The replacement of the Prompt Payment Code by the Fair Payment Code was announced in September 2024. [...] 17 SOCIAL MARKET FOUNDATION Increasing the availability of internal financing for investment Helping SMEs to save in order to increase their pool of capital The tax system should “work with the grain” of the financing preferences of most entrepreneurs and owner-managers and encourage the most efficient form of investment financing – retained earnings. [...] Whilst the reform proposed in Recommendation Three is not exactly the same as the changes brought in by Chile and Estonia, nevertheless, the evidence from these two countries offers policymakers a good idea of the kinds of benefits that could accrue to SMEs from such a change and in-turn the gains that are likely to be enjoyed by the wider economy as a result of the impact on SME investment behavi.