Government Budgets and changes in fiscal policy can always be a nerve-racking time for businesses, but never has there been such trepidation as in the run-up to Jeremy Hunt’s Autumn Statement.
With the economy in dire straits and forecasts bleak, few anticipated that the new Chancellor’s Budget would bring positive change for business.
Therefore, it came as little surprise to hear Jeremy Hunt unveil a raft of changes that will hit small businesses hard.
A total increase of £24 billion in taxes coupled with £30 billion of cuts in public spending was announced, but amongst the tax hikes, there was the occasional glimmer of good news for business.
We run through the main points covered in the Autumn Statement, and the impact they will have on small businesses.
The threshold for VAT has been frozen, requiring businesses with a turnover of £85,000 or more to register for VAT. This is one of the stealth taxes, forcing more businesses to fall into the VAT registration category as turnover increases in line with rising prices.
Businesses have been given some good news as the 10.1% planned rise in business rates has been scrapped for 2023. This would have represented the largest increase in 32 years, putting the survival of some businesses in genuine jeopardy.
Hunt also confirmed that the current 50% reduction for hospitality, leisure and retailers would be extended for a further 12 months, with the savings increased to 75%. A maximum of £110,000 is permitted per business.
The revaluation of business properties will still go ahead as scheduled in 2023, but there will be a package of support for businesses to transition spread over a five-year period. No further information on the available support has been provided so far.
Capital Gains Tax
Capital Gains Tax (CGT) is payable when an asset is sold for a profit, and for small businesses would typically apply if the business is sold.
From 2023, CGT will be reduced by more than half, dropping from £12,300 to £6000. From 2024, CGT will be cut further to an annual allowance of just £3000. The headline rates of CGT have not been changed, ranging from 10-20%.
Experts are predicting a sell-off in the next 12 months as businesses push through a sale to avoid paying more CGT.
Energy companies will be targeted under Jeremy Hunt’s plans, with a wider and higher windfall tax. The levy has been increased to 25% for oil and gas firms and introduced for electricity generation companies at 45%.
The dividend allowance is set to be slashed, reducing from the current £2000 to £1000 from next year, and then to £500 in 2024.
This means that the 2024 rate will be only a tenth of the full £5000 which was initially introduced in 2016.
Tax Credits for R&D
Changes to the R&D support were announced, with larger companies benefitting to the detriment of SMEs.
The tax credit scheme for R&D was introduced to encourage investment in innovation, enabling start-ups to adopt a more forward-thinking model. In the Autumn Statement, the support available for SMEs and startups has been cut from 130% to 86% with effect from 2023. This has the net effect of providing a tax credit worth 16.6p per £1 of R&D spending, compared to the previous 33.3p.
Simultaneously, the government will be increasing the R&D Expenditure Credit to 20%, up from 13%, in a move that will almost exclusively benefit large companies.
National Living Wage
From April 2023, the National Living Wage will rise by 9.7%, increasing to an hourly rate of £10.42. For a full-time worker, this represents an increase of £1600 pa.
In another stealth raid on taxes, the government has frozen the National Insurance threshold for employers until 2027/2028. Businesses must pay 13.8% in National Insurance on the salary of every employee who earns more than £9100 per annum. This means that in the coming years, small businesses will be paying more in NI costs for employees, netting the government £5.8 billion by 2028.
The stamp duty tax cut announced by Hunt’s predecessor Kwasi Kwarteng has been preserved – but only until 2025. Hunt has changed it from a permanent reduction to a mini-holiday, allowing it to stay for a further two years due to the OBR’s prediction of a slowdown in the property market.
A freeze in the threshold of the base rate of income tax means that in real terms, more tax will be payable. The current thresholds will remain fixed for two more years, and won’t be reviewable until April 2028.
Simultaneously, the threshold for additional rate tax (which is charged at 45%) has been cut from £150,000 to £125,140 with effect from April 2023.
The Energy Bill Relief Scheme is due to last until April 2023, providing businesses with assistance on their energy bills. There was no announcement that the scheme would be extended, nor any other measures which will be put in place. It’s expected that the government may offer more targeted relief for businesses that are struggling, but the details of any support package have not yet been announced.
As we can see, the Autumn Statement has had a profound effect on small businesses both for better and for worse, but now you’re up to date with the fiscal situation going into 2023, your business will be better equipped to cope with whatever comes your way. We are friendly and professional accountants in Norwich so If you’d like more information on how we can help your small business through this time of economic instability, reach out to us today and we’d be happy to discuss your options.