Some light relief: What the UK Budget’s tax changes mean for your business
UK chancellor Jeremy Hunt delivered his Budget statement on March 15 this year. Now that we have had some time to let the dust settle, what are the main things SMEs need to be focusing on?
There were several tax changes that directly affect small businesses, including changes to corporation tax and research and development tax. Investment in machinery and technology is now tax deductible.
In addition, the government is seeking to create new investment zones to boost financial support for local businesses and has pledged to work to ease customs issues with those trading internationally.
What the tax changes mean
Corporation tax rose from 19% to 25% for companies making taxable profits of over £250,000 with effect from 1 April this year. With energy bills remaining painfully high due to significant price increases over the past 18 months, this is unlikely to be welcome news.
|
Taxable profit |
Previous tax rate |
New tax rate |
|
£250,000+ |
19% |
25% |
|
£50,000-£250,000 |
19% |
19-25%, depending on marginal tax relief |
|
Less than £50,000 |
19% |
19% |
Source: HMRC
No relief has been given to small businesses to offset the impact of higher energy prices, nor were there any changes to business rates despite lobbying from groups such as the Federation of Small Businesses (FSB).
There are two areas in which some SMEs might be able to reduce their tax bills. Those that are heavily involved in research and development (R&D) could be eligible for the government’s new R&D tax relief programme. This is designed specifically for those that are currently making a loss, meaning they will be able to claim £27 back for every £100 spent on R&D. [i]
In addition, investments made into certain types of machinery and technology can be deducted from taxable profits to reduce SMEs’ tax bills. This applies up until 31 March 2026, but the chancellor is open to making the change permanent if conditions allow.
Similarly, the so-called ‘super-deduction’ – which allows companies to deduct half the cost of special rate assets from profits – has been extended to 31 March 2026, with the possibility of becoming permanent.
This could prove supportive of SMEs that need to implement machinery or technology upgrades at a time when other expenses are rising. Companies should explore how these reliefs and deductions can apply to their business models – and potentially reduce their tax bills.
Other support
While the FSB has expressed disappointment at the lack of support for SMEs in the Budget [ii], there are other elements that we believe could prove supportive for small businesses.
Up to 12 new ‘investment zones’ are to be established across the UK. Companies setting up within these zones are being given significant tax breaks and access to £80 million in government support per zone.
Companies in sectors such as digital services, life sciences, creative industries, and green technology should watch developments in this area closely to identify opportunities to attract investment and support to grow further.
For those SMEs trading internationally, the government has pledged to work on simplifying the customs declaration process to reduce the bureaucracy involved in imports and exports. This will be crucial to the private sector’s success post Brexit.
Subject to consultations, the government intends to increase the timeframes for submitting relevant declarations, as well as introducing digitisation and simplifying the authorisation regime to reduce administration burdens.
At a time when managing costs has never been so important, even small reductions in expenses can make a difference cumulatively across a business. While the 2023 Budget did not present SMEs with a bonanza of support, it has introduced measures that, correctly applied, could help some companies succeed and grow through the next few years.
To find out more about what the Budget means for your business and how Quadient can help, contact us today.
[i] Source: HMRC, Spring Budget 2023 Media Factsheet, 15 March 2023. https://www.gov.uk/government/publications/spring-budget-2023-factsheet-cutting-simplifying-tax-for-businesses-to-invest-and-grow/spring-budget-2023-media-factsheet-cutting-simplifying-tax-for-businesses-to-invest-and-grow/
[ii] See: FSB press release, ‘Spring Budget, fall back’, 16 March 2023. https://www.fsb.org.uk/resources-page/spring-budget-fall-back.html
