The Spring Budget 2023 introduces changes to the UK tax system to encourage businesses and investment. Chancellor Jeremy Hunt aims to make the UK’s tax system globally competitive by introducing capital allowances, supporting research and development, and simplifying taxes for SMEs.
Changes to Capital Allowances and Corporation Tax
In his Spring Budget 2023, the Chancellor announced a corporation tax increase from 19% to 25% for businesses of all sizes starting from 1 April 2023. The government also announced a new policy package that ensures the country’s capital allowances regime continues to be competitive, with two capital allowances worth a combined £27 billion over the next three years, Full Expensing (FE) and the 50% first-year allowance (FYA).
Full Expensing (FE): What it Means for Small Businesses
The government is introducing Full Expensing (FE) from 1 April 2023 to 31 March 2026. This policy allows businesses to deduct 100% of the cost of specific plant and machinery from their profits before tax, resulting in significant tax savings. FE applies to spending on qualifying main rate equipment, including warehousing equipment, tools, construction equipment, machines, vehicles, office equipment, kitchen equipment and more.
A significant advantage of FE is that companies can deduct the entire cost of the asset from their profits immediately rather than over the asset’s lifetime. This results in a 25p tax saving for every £1 invested, similar to the super-deduction. For example, a company investing £10 million in main rate assets will gain a £2.5 million tax saving in year 1.
Moreover, the Chancellor has expressed his long-term ambition to make Full Expensing permanent policy to provide greater certainty to small businesses and encourage investment in plant and machinery.
The 50% First-Year Allowance (FYA) Extension: A Breakdown
Small businesses can benefit from the 50% First-Year Allowance (FYA), which enables them to deduct half the cost of special rate assets, including solar panels and thermal insulation on buildings, from their profits during the year of purchase. Initially set to end on 31 March 2023, the scheme has been extended until 31 March 2026. After the first year, the remaining cost can be written off through Writing Down Allowances (WDAs) at 6% per year. FYA offers faster relief than the default WDAs-only regime at 6% per year, including the first year. The Chancellor is looking to make the 50% FYA permanent.
Research and Development Scheme: How Small Businesses Can Benefit
The UK government is committed to promoting conditions for enterprise to succeed, and the Chancellor’s new R&D scheme for SMEs is a significant part of the strategy. Worth around £500 million per year and set to launch on 1 April 2023, the scheme targets loss-making R&D intensive SMEs and offers an enhanced tax relief of £27 from HMRC for every £100 of R&D investment.
Furthermore, the scheme expands the scope of qualifying expenditure for R&D reliefs to include data and cloud computing costs and will support the development of digital technologies, life-saving medicines, and modern research methods. In combination with a permanent increase in the R&D Expenditure Credit rate, the scheme is expected to make the UK highly competitive globally for R&D.
Simplification of the Tax System for SMEs: Measures Announced
The government has announced measures to simplify the tax system for small businesses, including a review of the current VAT threshold to ensure its appropriateness for the current economic climate.
Additionally, the government will explore simplifying the VAT system for small businesses, such as implementing a flat rate VAT or cash accounting scheme. A new Small Business Tax Relief scheme has been introduced to provide additional support to small businesses struggling with their tax bills, enabling them to spread their payments over a prolonged period of time.
Finally, the rules around the Employment Allowance will be simplified, making it easier for small businesses to claim. These measures are a welcome relief for small business owners who often find tax compliance complex and time-consuming.
New initiatives introduced to encourage the over 50s back into the workforce
Over the past couple of years, a growing number of workers aged 50 and over have left the workforce. The Spring Budget introduces new initiatives to facilitate their return to work. The measures include new apprenticeships for those aged 50+ and providing mid-life MOTs to assess their financial situation. These initiatives aim to give older workers opportunities to retrain and access support.
Reactions to the Spring Budget 2023 from Business Organisations
The Confederation of British Industry’s (CBI) Interim Director General, Matthew Fell, praised the budget. The CBI had called for measures to support people and productivity – and the government’s actions on boosting childcare provision and supporting occupational health show that the Chancellor is listening to business needs. Fell believes the investment zones and quantum support will drive economic growth across the UK.
Meanwhile, the British Chambers of Commerce (BCC) has said that the measures outlined in the Spring Budget are unlikely to shift the dial on business investment, both within the UK and from overseas. The Director General of the BCC, Shevaun Haviland, welcomed the help on childcare and for over 50s workers – and the plans for full capital expensing, but added that the budget offered little comfort to businesses struggling to survive; considering almost half of UK businesses are expected to struggle with paying their energy bills from April. The BCC also called for the government to reform the business rates system.
Finally, the Federation of Small Businesses (FSB) called the budget a “snub” to small businesses, with FSB National Chair Martin McTague saying that small firms had been “overlooked and undervalued”. The FSB noted that the budget failed to support small firms with energy costs and business rates – showing a lack of understanding of the significant role SMEs must play in economic recovery. The FSB also criticised the ill-designed proposals to help people with health conditions, while measures for the over 50s are considered token efforts at best. However, the FSB welcomed the freeze on fuel duty and boost in draught beer relief, and sees the enhanced R&D tax credit as a significant step towards promoting innovation.
Want to find out how the budget will impact your business finances?
Get in touch at info@acuaccounts.com and book a consultation with our team. You can also call us directly on 0203 907 9027.
Recent Comments