Jeremy Hunt has delivered his Spring budget. Against the chaos caused by the Truss/Kwarteng budget of last September, and Hunt’s remedial autumn statement in November, where does the new government fiscal plan leave UK businesses? Hopefully with an answer to unending labour shortages, as the Chancellor has placed major emphasis on getting some of the UK’s millions of inactive workers back into the nation’s workforce. Apart from that, the rest of this budget was focused on growth via a number of technical changes, incentives, and initiatives. However, SMEs seeking further help with energy costs, reduction in taxes, or extensions to other support schemes were sadly disappointed, as none were forthcoming.
With these thoughts in mind, here are the main budget points for UK SMEs.
Going for Growth
The second pillar of the Government’s economic strategy is all-out growth. To achieve this goal, the budget introduced or extended a number of initiatives:
Capital Allowance Super Deduction replaced
The current Capital Allowances Super Deduction, which allowed businesses to deduct up to 130% of qualifying capital expenditure against taxable profits is expiring. It will be replaced by ‘full expensing’, which allows businesses to deduct 100% of the cost of IT, plant, and machinery in the year of purchase and for the next three tax years. The Government says this is initiative is worth £9billion in savings for UK corporations. We’ll delver deeper into this in further communicaitons.
R&D Tax Credits for research intensive and science-based Businesses
A new scheme to encourage innovation and growth within the UK’s life-sciences, technology and research business community has been announced. With immediate effect, qualifying firms with at least 40% of their total expenditure allocated to R&D may claim back an extra 27% of such costs. The Chancellor said this support was worth £1.8billion and would turn the UK into a ‘science superpower’.
After being first mooted by the Liz Truss budget, then summarily rejected by Hunt’s autumn statement, Investment Zones are back on the agenda again. In addition to the eight Freeports that are currently set up in England, (with more to come in Scotland and Wales), twelve new investment zones were announced – including the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.
Investment Zones are designated areas where low taxes and light regulation are intended to encourage growth and innovation. Zones that meet the Government’s criteria may receive up to £80million in support funding, although how that money is allocated to businesses that operate inside the zones has not been detailed yet.
Other growth schemes
As well as the headline initiatives above, the budget outlined other schemes that may support business growth.
- A combined fund of £110million allocated to support the UK’s charity sector, with £10million of that sum for charities that support suicide prevention.
- Good news for the fitness and leisure industry, as a new fund worth £63million is being set up to support local leisure centres and public swimming pools.
- £200million extra for regeneration projects, £200million extra to fill the nation’s potholes, and an extra £8million to support the Edinburgh Festival.
- Fuel duty to remain frozen for a further 12 months – saving the average motorist £100 per year but providing a bigger boost for businesses with large vehicle fleets.
- £8.8million to support public transport development schemes.
- More cash – in the shape of extensions to current tax deduction schemes – to support the UK’s film, TV, video games industries as well as our orchestras, theatres, and museums.
Did the budget announce tax changes for businesses?
No changes in today’s budget, but as per previous initiatives, corporation tax will rise to a maximum 25% April for some businesses on April 1st. According to the Government:
- The rate of Corporation Tax will increase from 19% to 25% for firms making more than £250,000 profit, around 10% of actively trading companies.
- Companies making between £50,000 and £250,000 will also see a rise in Corporation Tax, with the rate increasing incrementally from 19% to 25% depending on how much profit a firm was making. For the remaining 70% of actively trading companies, those who make profits of £50,000 or less, Corporation Tax remains at 19%.
Not mentioned in today’s budget, but as per previous initiatives, NIC thresholds remain frozen. This will raise an estimated extra £5.8bn for the Government by 2028. Companies have to pay 13.8 per cent in National Insurance contributions on earnings of all workers over £9,100 per year. The £5,000 employment allowance is also frozen. According to the government, 40% of employers will not be affected by decisions on the threshold for employer’s NIC due to the employment allowance.
No changes. Last November, the Chancellor promised that VAT will not change until 2026 – but with inflation, prices are going up, so more businesses will find themselves liable to collect and pay VAT (calculated by turnover rather than profit) than before.
Capital Gains Tax and Dividends
No changes announced.
No Change for current business support schemes
Many UK SMEs may have hoped for increased financial support in today’s budget. However, there were no changes to the Government’s current support packages.
- Business rates relief – no changes to the current five years support plan.
- Business energy relief – although the Government kept the energy price cap at £2500 for households for an extra three months to end of June, (instead of rising to £3000 per year average), there was no change to the current energy support package for businesses. The Energy Bills Discount Scheme for UK businesses will still run from 01 April 2023 to 31 March 2024. No uplift or extension to this scheme has been announced.
Jobs and labour supply
According to recruitment firm Manpower, labour shortages affect almost three quarters of UK businesses, and it’s a major drag on growth. The Government wants to relieve this problem by getting inactive workers back to work. What did the budget offer to help fill this gap?
Childcare Support Widened
One of the biggest factors holding back inactive workers is the cost of childcare. The UK has the third highest childcare costs in the world. Reduced borrowing and higher tax revenues have given the Government enough space to subsidise childcare costs for more working parents. Support that currently covers 3 – 4 years old children, will now be extended to cover 1 and 2 years olds as well – with support available for up to 30 paid hours per week.
Pension Allowances – an incentive for workers to work longer
To encourage retired workers back to work and to keep workers at work longer, the old £1million lifetime tax-free pension cap has been abolished. However, according to the BBC, this will only affect 107,000 individuals, or less than 1% of the UK workforce, as the majority of workers never achieve the £1million cap. It’s also worth noting that the Office for National Statistics says that ‘almost nobody who was retired wants to return to work’, so how many workers this initiative will inspire to return or stay remains to be seen.
Other worker initiatives
The Government is casting far and wide to grow the UK’s shrinking workforce. Other job-filling schemes include:
- Greater scrutiny of those on Universal Credit, with sanctions for those who refuse a viable job offer. The aim – encourage claimants off support and into paid work.
- More support for the disabled, with the aim of filling 50,000 jobs per year by those who currently do not work through sickness or disability.
- Reskilling and training programmes for over-50s workers to give them a new lease on working life.
Swoop’s Conclusion – some good news, but few details to work with
It may almost be Spring, but for many UK SMEs, it will feel like last Autumn all over again. That budget review gave little comfort to UK businesses, and today’s version continues the theme. Many of the Chancellor’s announcements were blue sky and big picture, but the evidence-based details that UK SMEs need to work with were lacking. There may be grand opportunities for businesses in investment zones, and worker initiatives may reduce the labour shortages, but they are a long way off and many organisations need concrete help now. However, as always, one of the certainties of life – taxes – remain in sharp focus – companies face increases, just as they need cash support to help the country to achieve the growth that the Government demands.
Swoop’s webinar on the Spring Budget: what you need to know
Join Swoop’s founders, Andrea Reynolds and Ciaran Burke as they delve into the details and share their insights on Friday 17th March 1pm – sign up now.
Links and sources:
House of Commons Library: https://commonslibrary.parliament.uk/research-briefings/cbp-9745/
Energy scheme: https://www.gov.uk/guidance/energy-bills-discount-scheme