Spring Budget 2023 - What it means for SMEs
Chancellor Jeremy Hunt has unveiled the contents of his first budget in the House of Commons. During his speech, he announced incentives designed to help small businesses offset corporation tax rising to 25 per cent from next month.
This summary provides a brief overview of what it means for SMEs and their owners.
Business Taxes
Corporation Tax
First announced by Rishi Sunak in his 2021 Spring Budget as Chancellor, it is confirmed that Corporation Tax will increase from 19 per cent to 25 per cent from April. Businesses with profits of over £250,000 will feel the full impact of upcoming tax rises. Marginal Relief↗ can be utilised to help those whose annual earnings fall between £50k and £250k minimize their Corporation Tax burden, while smaller companies making less than £50k can breathe a sigh of relief knowing there's no change in store for them.
Annual Investment Allowance
Smaller businesses will benefit from an increased Annual Investment Allowance. With up to £1 million of their investments being deductible from taxable profits, they can deduct the full value fo their investments.
Full Expensing Business Investment
The Chancellor has replaced the super-deduction tax break with Full Expensing↗. This allows 100 per cent of qualifying capital expenditure to be written off against taxable profits in the year the investment is incurred.
It applies to spending on main rate equipment, which includes warehousing equipment, tools, construction equipment, IT equipment, vehicles, office furniture, and some building fixtures such as kitchen and bathroom fittings and fire alarm systems.
FE means that companies can deduct 100 per cent of the cost from their profits immediately – rather than over the life of the asset.
FE results in a 25p tax saving for every £1 invested. Before, the super-deduction and with the 19% Corporation Tax rate, companies investing £10m in main rate assets received a £342,000 tax saving in year 1. Under full expensing, on a £10m investment, a company will receive a £2.5 million tax saving in year 1.
The 50% First-Year Allowance (FYA)
The 50% FYA lets businesses deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long-life assets such as solar panels and thermal insulation on buildings.
The scheme was due to end in March 2023, but this has now been extended by three years to 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
R&D Tax Credits
The Chancellor has announced a partial softening of measures to cut R&D tax credits for small businesses. In response to concerns about abuse of the SME R&D program, and to increase the international competitiveness of UK businesses, the Government is rebalancing the rate of R&D relief for SME and Large Companies (under the R&D Expenditure Credit Regime).
For expenditure on or after 1 April 2023:
Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
Small and Medium-sized Enterprises (SME) additional deduction will decrease from 130% to 86%
SME credit rate will decrease from 14.5% to 10%.
The Government will also consult on the design of a single R&D tax relief scheme and mechanisms to further support R&D intensive SMEs.
Investment zones
The Treasury has announced a dozen Investment Zones↗, enabling businesses operating inside them to benefit from enhanced tax relief and lighter-touch regulations. Locations include:
West Midlands
Greater Manchester
North-East
South Yorkshire
West Yorkshire
East Midlands
Teesside
Liverpool.
There will also be at least one investment zone in each of Scotland, Wales and Northern Ireland. Each zone will get £80m of funding for skills, infrastructure, tax reliefs, and retention of business rates.
Personal Taxes
Pensions
The Chancellor has announced an increase in the pensions Annual Allowance from £40,000 to £60,000, and the abolition of the Lifetime Allowance. This affects the amount you can save in your pension pots before paying tax.
Other Measures
Energy Bills Discount Scheme
Despite the current economic challenges and the cost of doing business crisis, the energy bill price cap increase will still go ahead in April.
This means that businesses will receive a discount on wholesale gas and electricity prices rather than a fixed price. The Energy Bills Discount Scheme↗ is set to run until 31 March 2024.
Fuel Duty
For the 13th consecutive year, it was confirmed that fuel duty will be frozen for another year, and the 5p cut in the price of petrol and diesel will remain in force. Jeremy Hunt said that this would save the average driver £100 over the coming year.
