Jeremy Hunt Unveils 2022 Autumn Budget – The SME Summary

17 November 2022

Here is our summary of the key points for UK SMEs from Jeremy Hunt’s 2022 Autumn Budget, including £55bn worth of tax & spending reforms.

news : Policy, Tax and Trends

Another month, another budget. But this announcement—the first of newly-appointed PM Rishi Sunak’s government—feels more definitive than the previous two, one in September and the subsequent u-turn in October. Chancellor Jeremy Hunt largely confirmed expectations with a fiscal package that aims to help the UK face “unprecedented global headwinds”.

Hunt opened his statement presenting OBR data showing that the UK, “like other countries” is now in a recession expected to last just over a year. Inflation is expected to be 9.1% this year and 7.4% next year. Unemployment is forecast to rise from 3.6% today, to 4.9% in 2024, before falling to 4.1%.

The Chancellor presented what he called a “plan for stability, growth and public services”, consisting of a £26bn cost-of-living package (including pension and benefits rises, energy prices guarantees and a NLW increase), balanced by a £55bn “consolidation package” consisting of £30bn worth of savings on public spend, and £25bn worth of tax increases.

This plan relies on two key rules: underlying debt as a proportion of GDP to fall at the end of a five-year rolling period, and public sector borrowing to stay below 3% of GDP over the same period.

Below is our summary of the key points from today’s Budget Announcements for UK SMEs.

Business Taxes

Hunt’s plan seeks long-term stability over everything else.

For this reason—like many personal tax thresholds—the Employer’s NIC threshold is now frozen until April 2028.

The Employment Allowance, which was increased to £5,000 in the last Spring Statement, will stay at the current level until March 2026.

In a move that is expected to raise £14bn, the Energy Profits Levy on oil and gas companies will increase from 25% to 35% from 1 January 2023, and will remain in place until March 2028. Additionally, a temporary 45% levy on electricity generators will also be introduced next year.

While the government will go ahead with a revaluation of properties for business rates, it will provide compensations to affected companies, resulting in two thirds of business properties not having to pay any more than this year.

R&D Tax Credits

In a move that had been anticipated back during Sunak’s tenure as Chancellor, the R&D Tax Credits system will be reformed in an effort to reduce fraud and abuse, and to level the playing field between the more generous SME scheme and the RDEC scheme.

For R&D spend occurring from 1st April 2023, the following changes will come into effect:

  • the RDEC rate will increase from 13% to 20%;
  • the SME additional deduction will decrease from 130% to 86%;
  • the SME credit rate will decrease from 14.5% to 10%.

Additionally, Hunt announced a government consultation on the design of a single scheme. He also reassured that he wants to increase public R&D funding to £20bn by 2024-25.

Personal Tax

For business owners, the dividend allowance will be cut from £2,000 to £1,000 starting April 2023, and subsequently to £500 in April 2024.

As it was highly anticipated, the threshold for the top rate (45%) of income tax—which former Chancellor Kwarteng wanted to abolish altogether—will come down from £150,000 to £125,140.

Other allowances and thresholds will be frozen for a further two years, until April 2028, in line with Employer’s NIC. This includes:

  • Income Tax
  • National Insurance
  • Inheritance Tax

Hunt says, even with this freeze, “we’ll still have the most generous set of tax-free allowances of any G7 country”.

Benefits, Pensions, Cost of Living & Other Public Spending

With inflation at the top of his priority list, Hunt announced that both benefits and pensions will both rise by 10.1%—in line with inflation—respecting the so-called triple-lock. However, this will only come into effect next April, meaning the ones relying on pensions and benefits will still face struggles throughout the winter.

The Chancellor also announced that the energy price guarantee will be extended for 12 months starting April 2023, with prices capped and the average household paying £3,000. Hunt said rent increases in the social rented sector will also be capped at 7%.

As per the Low Pay Commission’s recommendation, the National Living Wage will see a 9.7% increase next year, up to £10.42.

However, as part of his public spend savings plan Hunt announced further energy and R&D measures.

Firstly, the government will go ahead with building a new nuclear power plant, Sizewell C. Secondly, vehicles will no longer be exempt from vehicle excise duty, and lastly, so called-investment zones (one of former PM Truss’s key ideas) will now focus on “leveraging our research strengths by being centred on universities”.

Finally, the Chancellor announced a NHS budget increase of £3.3bn over the next two years, plus additional funding for the social care sector of up to £2.8bn next year and £4.7bn the following year.

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