The Government’s emergency budget – described by them as “The Growth Plan” – is the most radical in decades, and its low-tax agenda and high borrowing has raised alarm in some quarters.
But for small and medium enterprises (SMEs) in particular, there are plenty of changes that stand to deliver new benefits, both to the business directly, and through more attractive conditions for employees.
Here’s what’s changed – and what it means to many of Bedfordshire Chamber of Commerce’s member businesses across the county.
You’ll keep a bigger slice of profit
Corporation Tax is in many ways the star act for SMEs in the new budget. It will now remain at the main rate of 19% (this is the rate most SMEs pay) – the planned increase to 25% has now been cancelled. This means many businesses will keep more of the profits that they earn, which, in the face of a coming recession, is likely to be a much-needed provision.
Employees will cost less – and earn more
The 1.25% National Insurance (NI) increase that was introduced in April 2022, and provoked some bitter protests, will now also be reversed, from 6 November 2022. This means your business will pay less to HMRC per NI-eligible employee, and the employees themselves will also pay less, effectively boosting their net earnings.
Additionally, the 1 percentage point cut to the basic rate of Income Tax has been brought forward to April 2023, and accompanied by reductions to the dividend tax rate.
Both of these are good news for SME owners who pay themselves dividends instead of/or in addition to a salary, putting more money in pockets at a time when rising cost of living and energy costs are starting to bite hard.
A boost to allowances and tax relief
Another change that is positive for many businesses’ coffers is what is happening to the Annual Investment Allowance (AIA) – the provision that enables you to deduct 100% of the cost of equipment, machinery, and tools from your profits, and so reduce your tax liability. It will now not revert to its pre-pandemic level of £200,000, as originally planned, but will stay at £1 million.
At the same time, new investment zones are being created around the UK that will result in enhanced tax reliefs for Stamp Duty Land Tax (SDLT), Enhanced Capital Allowances, Structures and Buildings Allowance, and Employer National Insurance contributions.
Whether Bedfordshire is one of these zones remains to be seen.
A shot in the arm for start-ups
As you might expect from a “growth plan”, the budget has focused some significant changes on how start-ups can be funded, and their growth accelerated.
From 6 April 2023, the Seed Enterprise Investment Scheme (SEIS) limit for individual investors will double to £200,000, and the gross asset limit increase to £350,000 – good news for entrepreneurs looking to maximise their funding.
Plus, in a significant gesture to the investors themselves, they will benefit from easier ways to claim tax relief on their investment.
IR35 – the contractors’ nightmare at an end?
The budget has also brought a breath of fresh air into the relationship between contractors and the companies who use them, with a promise to repeal reforms to IR35 legislation that had placed the assessment of contractors’ tax status in the hiring organisation’s hands, creating massive administrative pain on both sides.
Some caution is advised here, however; Liz Truss has in fact not yet formally committed to making the changes that have been mooted. However, if she does make good on her actions, it is anticipated IR35 status decisions would revert to the contractors themselves from April 2023.
A focus on employee reward
Growth can’t happen if businesses can’t retain talent, so the budget’s focus on changes that enable employees to be better rewarded is perhaps unsurprising.
The budget’s changes to the Company Share Option plan (CSOP) scheme - an alternative for businesses too big for EMI shares, or not eligible for them under trade criteria - increase the employee share option limit from £30,000 to £60,000.
They also remove a condition that limits the types of shares eligible for inclusion within the scheme, with both changes due to take effect from 6 April 2023.
What’s the catch?
No budget is ever all upside, and this one is certainly not without its risks for some businesses.
For companies that buy and sell in large volumes in US dollars, for example, the impact of the budget on exchange rates is already being felt, and the worry is that it may stoke inflation and rising interest rates longer-term, to an extent as yet unknown.
Detail is also lacking in places and the Government needs to move fast to clarify it if businesses are to fully understand exactly what new opportunities the budget enables them to grasp.
Where will the new investment zones be, for example – and, as we remarked above, will Bedfordshire be one of them?
What do “enhanced” reliefs and benefits really mean in those zones, and how much will they actually be worth? And will the positive changes to IR35 materialise, given that nobody in Government appears to have yet signed on the dotted line to make them law, and there is a strong fiscal incentive to treat as many contractors as salaried workers as possible?
Electricity prices, too, are a source of some disquiet. Whilst the announcement of price reductions through the Energy Price Relief Scheme from 1st October is welcome, the shine’s been taken off it somewhat by the fact that the reduction will only be in place for six months, until the end of March 2023.
There will, additionally, be a review after three months to consider targeted support for those businesses most in need, but what further action – if any – that could lead to, and what the eligibility criteria would look like, is all still very much unsaid.
What do you do next?
The changes will take their own course, but it’s important you thoroughly understand what effects – positive and negative - they could have on your business, and what you should do to both maximise the gains and minimise the risks.
At Bedfordshire Chamber of Commerce, our community puts you in touch with subject matter experts who can give you trustworthy information on many topics, Member2Member offers that enable you to make product and service savings, and a wealth of online resources, webinars, and virtual and face-to-face events to guide you through the day-to-day challenges of owning or running a business, whether they come from Westminster or closer to home.
For more information on becoming a member of Bedfordshire Chamber of Commerce, if you’re not already, get in touch today.