Introduction
Following Liz Truss’s controversial mini-budget in September, Chancellor Jeremy Hunt unveiled his budget plans last week after a 17-month wait for the country’s budget. In this article, we look at how the new spring budget will impact SMEs, including new investment tax allowances and work and pensions announcements. Here are the main things to take note of:
Business Tax
The Chancellor’s spring budget is the most important and relevant to SMEs. It is where we see the UK government’s approach to business and how they intend to support small businesses. This year, the Budget has good news for small and medium-sized businesses. The update includes more money for R&D tax credits and extra funding for apprenticeships to strengthen workforces.
Business rate reductions are still in place however with some changes. The super deduction announced in March 2021 is coming to an end at the end of this month where businesses could claim a 130% super-deduction capital allowance and a 50% first-year allowance for qualifying special rate assets. The budget announced new schemes instead, full expensing and a new FYA scheme:
Full Expensing
One of the most eagerly anticipated changes is full expensing. This means that companies can claim 100% capital allowances on qualifying plant and machinery investments from April 2023 until the end of March 2026. There’s a possibility that it may be made permanent beyond 2026 if practical.
Full expensing is a 100% first-year allowance meaning you can claim a deduction from your taxable profits that matches 100% of your qualifying expenditure in the year you had that expenditure. Full expensing essentially allows your business to write off the cost of any investments and also means its taxes are reduced by 25p for every pound.
50% First-year Allowance (FYA)
The UK Chancellor has announced that the 50% first-year allowance (FYA) for expenditure on special rate (including long life) assets until 31 March 2026 will be extended by a further year. The FYA was due to end on 31 March 2023, but the chancellor claims this scheme is equivalent to a £9bn tax cut and expects a 3% increase in investment, which he says will help create jobs and prosperity.
The Annual Investment Allowance (AIA) provides first-year relief for plant and machinery investments up to £1m and is still available for all businesses including unincorporated businesses and most partnerships.
Research and Development Scheme
The Chancellor has also announced that a new research and development tax credit of 27% will be available to loss-making ‘R&D intensive’ SMEs that spend 40% or more of total expenditure on qualifying R&D. This is exciting news for SMEs and will help over 20,000 businesses. It starts on 1st April this year and is worth around £500m per year.
Corporation Tax Increase
The government has announced that the corporation tax rate will increase from April 2023. With the top rate of 25% being charged on businesses with profits of more than £250,000. It was announced in March 2021’s budget but then reversed in September 2022’s mini-budget, only to be announced again today. Businesses with profits below £50,000 will continue to pay 19%.
Investment Zones
Under the new government, there will be 12 new investment zones to boost growth, providing specialist support for businesses and boosting local infrastructure. The zones will receive £80m of funding over five years and include tax reliefs and grant funding. These zones include:
- West Midlands.
- Greater Manchester.
- North East.
- South Yorkshire.
- West Yorkshire.
- East Midlands.
- Teesside.
- Liverpool.
At least one zone in Scotland, Wales and Northern Ireland will also be created. Each zone is based around major research institutions to become research and development hubs for their regions. These hubs will hopefully help to provide specialist business support, boost growth in the areas and boost local infrastructure.
Work and Pensions
There are numerous changes to work and pensions measures as well:
Return to Work Support
The government has announced more support forthose over 50 years old wanting to return to work. These measures aim to help businesses that are struggling to recruit new staff members. According to recent statistics, there are around 3.5 million people who are of pre-retirement age not in the UK’s labour force.
This is a rise of 320,000 from pre-pandemic levels. As well as this, further reforms to the pension tax system by the government have been carried out to encourage more people over the age of 50 to return to work and come out of early retirement.
Apprenticeships For Over 50s
The budget is also supporting over 50s to go back to work by offering a new form of apprenticeship called a returnship. They are essentially apprenticeships aimed at those over 50 years old to encourage them to learn a new trade or vocation and go back into the workforce. The government sees this scheme as an opportunity for those over 50 to learn new life skills with the new apprenticeships. This scheme is supposed to get £63 million of funding however no timelines have been announced for when it will be introduced.
Midlife MOTs
The Department of Work and Pensions are also planning on increasing the number of over 50s to benefiting from a midlife MOT, from 8,000 to 40,000 a year. This new measure aims to encourage more people in their 40s, 50s or 60s to access free online support to help find new work, focus on their well-being or answer any money concerns they may have.
This measure has been implemented to encourage those over 50 to seek help on how they can return to the workforce. This includes advice on switching careers, focusing on well-being in the workplace and if they are budgeting well enough for their lifestyle. From this platform, people will also be able to view any job vacancies in their area and receive tips on how to apply for a new role.
Pension Increase
A pension increase has also been announced by the Department for Work and Pensions. The annual pension allowance which is the amount you can put towards a private pension without tax has been frozen for 9 years. However new changes from the spring budget mean the amount has increased from £40,000 to £60,000.
The pension lifetime allowance of £1.07 million has been scrapped which means people will be able to make unlimited contributions towards their pension without being taxed. This has all been implemented to want to encourage as many over 50’s as possible back into the workforce for longer before people retire.
Childcare Support
The Chancellor has also announced measures of increased childcare support. This means from April 2024, working parents who have children aged between 9 months and 5 years old will be able to receive up to 30 hours of free childcare. This measure aims to encourage more parents to return to the workforce and help to relieve staff shortages in various sectors.
Final Thoughts
This year’s spring budget has been met with a better reception than the mini-budget from last September. However, there’s still a long way to go for SMEs to fully recover from the impact of the cost of living crisis and the pandemic.
