The Spring Budget, the UK’s first full Budget for 17 months, comes at a time when businesses are struggling with rising inflation, fragile supply chains, increasing energy costs and a growing war for talent.
Businesses large and small will be looking for any help that they can get from Chancellor Jeremy Hunt.
In this article, you’ll learn:
- What in particular the Chancellor is offering small and medium-sized businesses
- What new investment tax allowances might be available for your business
- What the government is doing with childcare costs
- The areas of the country to be designated investments zone
- How the government plans to make it easier for older people to get back into work.
Here’s what we cover:
- Business taxes
- New investment zones
- Work and pensions
- Additional Budget announcements
- Final thoughts
The super-deduction ends on 31 March 2023. In place of it, the Chancellor unveiled two new capital allowance schemes: full expensing and the 50% first year allowance.
One of the most hotly debated issues facing the Chancellor has been investment allowances.
The good news is that the government has been more generous here. For instance, from April 2023 until the end of March 2026, companies can claim 100% capital allowances on qualifying plant and machinery investments.
It was also announced that this may be made permanent beyond 2026 if practical.
Full expensing is a 100% first-year allowance which means you can claim a deduction from your taxable profits that’s equal to 100% of your qualifying expenditure in the year you incurred that expenditure.
Full expensing will allow your business to write off the cost of investment all in one go and for every pound your company invests, its taxes are reduced by up to 25p.
The 50% first year allowance
Your business can also benefit from a 50% first-year allowance (FYA) for expenditure on special rate (including long life) assets until 31 March 2026.
That date was extended by three years – it had been due to end on 31 March 2023.
In addition, the Annual Investment Allowance (AIA) providing 100% first-year relief for plant and machinery investments up to £1m, is still available for all businesses including unincorporated businesses and most partnerships.
“The standout announcement from Jeremy Hunt in today’s Spring Budget, which also came as a welcome surprise, was the announcement of a new scheme to allow every pound invested by businesses in IT equipment, plant or machinery for the next three years to be deducted in full from taxable profits,” says Huw Miles, managing partner of solicitors Paris Smith LLP.
“This is a huge change and has the potential to be a massive incentive to drive business investment – something which has been an issue since the financial crisis.
“The Chancellor claims this is equivalent to a £9bn tax cut, and that the UK will be the only European country to have full expensing.
“The Office for Budget Responsibility expects this measure to drive a 3% increase in investment.”
New R&D scheme for SMEs
An enhanced research and development (R&D) tax credit of 27% will be available to loss-making ‘R&D intensive’ small and medium-sized enterprises (SMEs) – those that spend 40% or more of total expenditure on qualifying R&D.
Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non R&D intensive loss makers.
The new scheme, which is expected to help approximately 20,000 businesses, begins on 1 April 2023 and is said to be worth approximately £500m per year.
Penny Simmons, a tax expert at law firm Pinsent Masons, describes the Chancellor’s announcement as “excellent news for R&D intensive businesses across the UK.”
The enhanced tax credit is a “huge relief” for businesses operating in sectors heavily dependent on R&D, she says, particularly those in the life sciences sector.
“It is positive and reassuring to see how constructively the Treasury has engaged with R&D intensive sectors and listened to their concerns about the significant detrimental impact of cuts to SME R&D tax reliefs being introduced in April,” says Penny.
“It is reassuring that a workable solution has been found to reduce the detrimental impact of the cuts.”
Martin McTague, National Chair of the Federation for Small Businesses, says: “The enhanced R&D tax credit is a significant step towards promoting innovation.”
Corporation tax increase to remain
The Chancellor confirmed that from April 2023, corporation tax is going to rise from 19% to 25%.
Businesses with profits of more than £250,000 will pay the top rate of 25%.
For small businesses with profits of less than £50,000, they’ll continue paying a corporation tax rate of 19%.
That rate will have a gradual increase for businesses as their profits rise between £50,000 and £250,000.
New investment zones
The Chancellor unveiled a new scheme of 12 investment zones. The aim is to drive investment, with each zone receiving £80m of funding over five years, including tax reliefs and grant funding.
For England, eight mayoralty areas are on the shortlist to host investment zones. They are:
- West Midlands
- Greater Manchester
- North East
- South Yorkshire
- West Yorkshire
- East Midlands
There will also be at least one investment zone in Scotland, Wales and Northern Ireland.
Each zone will be based around a major research institution, most likely to be a top university, with the aim that the zone will become research and development hubs.
The money is intended to be used to improve skills, provide specialist business support, enhance the planning system – considered essential for growth – or to boost local infrastructure.
Work and pensions
Return to work support for the over 50s
Struggling to recruit staff?
Your business might well be encouraged by the Chancellor’s moves to entice older people back to work.
There are currently around 3.5 million people of pre-retirement age who are outside the UK’s labour force, a rise of 320,000 on pre-pandemic numbers.
With that in mind, there are reforms to the pension tax system to encourage the over 50s to come out of early retirement and to get back into the workplace.
And the Chancellor announced a couple of drives to boost the workforce: ‘returnership’ apprenticeships and midlife MOTs.
The Chancellor described the returnership initiative as: “A new kind of apprenticeship targeted at the over 50s who want to return to work…
“They will be called returnerships, an offering alongside skills boot camps and sector-based work academies.”
He said these returnerships will “bring together our existing skills programmes to make them more appealing for older workers focusing on flexibility and previous experience to reduce training length”.
The returnerships will be supported with £63m of additional funding but there are no timelines on when this programme will begin.
The Department for Work and Pensions will increase the number of over-50s benefiting from midlife MOTs five-fold, from 8,000 to 40,000 a year.
A midlife MOT offers what the government describes as “free online support to encourage people in their 40s, 50s and 60s to make more active planning in the key areas of work, wellbeing and money. It is aimed at both employees and employers.”
Views on the drive to get older people back to work
“The big push to get people back to work is welcome news for businesses,” says Connor Campbell, business expert at business comparison site NerdWallet.
“Not only will it help ease any hiring issues firms may be currently facing by widening the pool of potential employees, businesses may also benefit from an injection of experience into the workplace as the government incentivises over-50s to rejoin the workforce.
“Creating an all-ages workplace, where fresh graduates mix with experienced colleagues, is a fantastic way to ensure every challenge is greeted with multiple perspectives and approaches.
“And this is only more likely to happen if the over-50s Hunt is targeting take up his offer.”
The annual pension allowance, the amount you can contribute to your private pension in a year without incurring tax, has been increased from £40k to £60k – it’s been frozen for the past nine years.
Meanwhile, the pension lifetime allowance of £1.07m is going to be scrapped, meaning people can make unlimited contributions to their pensions without incurring a tax charge.
The government hopes these measures will encourage people to stay in work for longer before they retire.
Childcare support for working parents
The Chancellor announced that from April 2024 and rolled out in stages, working parents of children aged between nine months and five years old will get up to 30 hours of free childcare. This will be fully implemented by September 2025.
That is something that’s currently only available to eligible parents of three- and four-year-olds.
The funding will start from the moment maternity and paternity leave ends. All parents in a household must work at least 16 hours a week at the minimum wage to qualify.
The Chancellor hopes that the change will encourage more parents to come back to work. And that could help to relieve staff shortages for businesses that have roles to fill.
In addition, it was announced that all primary schools will be offering wraparound care either in partnerships with other schools or on their own from September 2026.
“It may take time for parents to feel the benefit, given we won’t yet have the childcare facilities or workers in place to cover the need,” warns Laura Hinton, head of PwC’s UK Tax and People Consulting business.
“However, combined with other policies such as increasing wraparound care, it sends a signal that the government is on the case to support working parents.”
“The policy announced by the Chancellor today could… not only boost the UK labour force participation rate, it may also help to close the gender pay gap.”
Alice Haine is a personal finance analyst at Bestinvest, a DIY investment platform and coaching service. She’s happy with the announcement that childminders in England will be allowed to look after more children.
She says: “Another key boost to the childcare system will come from increases in support for childcare providers and childminders, as well as changes to the staff-to-child ratio in childcare, meaning that only one carer is required for every five children, rather than four.
“This brings the policy in line with Scotland – a measure that could ease the staffing shortage and open up more childcare places – though there may be concerns about safety and quality of care.
“Funding for local authorities to increase wraparound childcare provision in schools will also make it easier for women to return to full-time employment.”
Additional Budget announcements
Draught beer relief
Known as the new ‘Brexit pubs guarantee’, from 1 August 2023, the duty on draught products in pubs will be up to 11p lower than that in supermarkets.
Martin McTague of the FSB says: “The increase in draught relief will also go a long way to helping the Great British Pub.”
Fuel duty frozen
The Chancellor announced that fuel duty will be frozen.
In addition, the 5p reduction to fuel duty on petrol and diesel that was due to end on 31 March will now remain for an extra year.
Martin McTague says: “The fuel duty freeze is a result of FSB’s campaigning and the springboard small firms need to help navigate the difficult roads ahead.
“This will save them money and provide some breathing space, allowing them to focus on growth.”
Final thoughts on the Spring Budget
In his first Spring Budget, the Chancellor announced a number of changes that your business will need to be aware of.
Some of those will begin from April 2023, while others will be implemented further down the line.
So make sure you review the changes that will affect your business and put plans in place to either make the most of them (such as full expensing) or have them factored in (the corporation tax rise, for example).
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