Spring Budget 2023 – The SME Summary
Today, 15th of March, Chancellor Jeremy Hunt delivered the 2023 Spring Statement in Parliament, revealing timely updates to his Emergency Budget last year. The majority of his policies target the needs of the UK population at a time of high uncertainty, including rising inflation, health and energy crises, triggered by political and economic instability.
The OBR’s latest forecast from November presented a dire economic outlook. The UK was expected to enter a recession this year and grow slower over the next five years than originally anticipated last March. While the Bank of England revised its forecast upwards, it is still more pessimistic than the Office for Budget Responsibility (OBR).
Our overall take on today’s Budget:
Positives: Chancellor Jeremy Hunt announced, according to the OBR, that the UK is expected to avoid a technical recession in 2023. The rate of price rises, or inflation, is forecast to fall to 2.9% by the end of this year.
Negatives: While the economic outlook for 2023-24 is slightly less bleak than forecast last year, it remains fragile, with soaring costs of living and still high government borrowing. The UK is on track for recovery but tough times aren’t over yet.
Chancellor Jeremy Hunt declared his budget will achieve growth by “removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”
As usual, we’ll summarise the most relevant measures from Jeremy Hunt’s Spring Budget 2023 in detail that we think will affect UK start-ups, scale-ups, and SMEs the most.
Corporation tax to increase to 25%
Corporation tax for businesses is to increase from 19% to 25% as expected. Companies which make a profit of more than £250,000 will pay a 25% tax on their profits from April 2023. This change was announced by Rishi Sunak in his 2021 Spring Budget.
The Chancellor claims this will only affect 10% of companies.
Capital allowances: Full expensing
From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery (including IT equipment) will qualify for a 100% first-year allowance for main rate assets. This means companies across the UK will be able to write off the full cost in the year of investment against their taxable profits, known as full expensing.
Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment until 31 March 2026. Expenditure on plant or machinery for leasing is excluded from first-year capital allowances due to longstanding concerns about abuse and wide scope for error. The government will work with industry to identify possible policy solutions that appropriately mitigate these risks.
Small businesses investment allowance increased to £1m
Just as corporation tax goes up, investment incentives are scheduled to be removed. The corporation tax super-deduction, which allows businesses to cut their tax bill by 130pc of the value of qualifying investment, will end on March 31st, 2023.
Chancellor Jeremy Hunt announced that businesses would continue to benefit from the increased Annual Investment Allowance to £1m.
We will share more details as soon as they are announced.
R&D Tax Credits
Chancellor Hunt announced a tax boost for R&D intensive smaller and medium businesses. These businesses will now be able to claim a credit worth £27 for every £100 they spend if they spend 40% or more of their total expenditure on Research and Development.
Extremely positive news for our fast-growth businesses and a great incentive to increase innovation in the UK.
- The package is targeted specifically at loss-making R&D intensive SMEs. Focusing support towards those most impacted by the rate changes introduced at Autumn Statement 2022. See our blog about the changing SME R&D rates.
- A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure.
- 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. This is achieved by eligible SMEs claiming at 14.5% whilst not eligible companies can claim at 10%.
- This builds on previously announced changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data & cloud computing costs.
We’re still waiting to hear more on the ongoing R&D tax relief review, including a final decision on whether to merge the RDEC and SME schemes.
Support for environment sustainability
The chancellor is dedicated to reduce the carbon emission that contribute to climate change. He will allocate up to £20bn to support the early development of carbon, capture, usage and storage, starting with projects from East Coast to Merseyside to North Wales. Hunt says that this will support up to 50,000 jobs, attract private sector investment and help capture 20-30 million tonnes of CO2 per year by 2030.
He also will extend the Climate Change Agreement scheme for two years to allow eligible businesses £60m of tax relief on energy efficiency measures.
Nuclear power will also be classified as “environmentally sustainable”, giving it access to the same investment incentives as renewable energy.
The Investment Zones were first introduced last year by then-prime minister, Liz Truss. Today, Chancellor Hunt announces 12 new Investment Zones.
They will be spread across the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.
Each of them will be backed with £80m of funding, including generous tax incentives. He also confirmed that a further four zones will sit across Scotland, Wales and Northern Ireland.
Fuel duty to remain frozen
Energy and fuel costs have been rising to unprecedented levels across the countries. Last Autumn, the Chancellor announced that the fuel duty on petrol and diesel will be cut by 5p per litre, effective until March 2023. The Chancellor today confirmed that fuel duty will be frozen and the 5p reduction will be maintained for a further year. Welcome news for businesses that directly deal with the delivery or transportation of goods.
The pension annual contribution allowance will increase from £40,000 to £60,000 and the Pension Lifetime allowance has been abolished.
The government has allocated £100 million funding for the Innovation Accelerators programme and will shortly publish the details of the 26 transformative R&D projects in the Glasgow City Region, Greater Manchester and the West Midlands.
New AI research incentive
Jeremy Hunt announces an exciting incentive – AI Challenge Prize – worth £1m every year, for the next 10 years, “to the person or team that does the most ground-breaking AI research”.