The recent mini-budget was planned to be a “Budget for growth”, an opportunity for the new Prime Minister to launch the start of her premiership. The Initial reaction from the markets has not been good, but how could the measures announced help businesses achieve their goals of growth?
Boost to business owners
The Chancellor’s statement included a number of announcements designed to encourage business owners to invest more time and money into their businesses by allowing them to keep more of their hard-earned profits to take home or reinvest in the business. This included a number of tax measures:
Reduction in income tax
From April 2023, there will be a reduction in income tax at the basic rate from 20% down to 19% and at the higher end, the 45% tax band will be scrapped.
National Insurance and Dividend tax
The recentNational Insurance and dividend tax rises of 1.25% will be reversed from 6th November, enabling business owners to keep more of their earnings.
Corporation Tax
A halt to the planned corporation tax rise to 25% (due to increase from 19% in April 2023) will leave more profits in the business to either pay out to shareholders or leave extra money to reinvest in the business.
Support for businesses facing increased costs
Also announced in the budget - or just before the budget - were the following support packages which should help businesses through a very difficult financial period.
Energy Support
The Government announced just prior to the mini-budget that businesses will benefit from a capped rate of energy for six months, from 1st October to 31st March 2023, with a review after 3 months. Electricity will be capped at 21p per KW/Hr and 7.5p per KW/Hr for gas. This will be a very welcome relief for many businesses who were facing prices 3-4 times higher.
National insurance reductions – As mentioned above, employers and employees will see the reversal of the recently added 1.25% charge increase to Employers’ National Insurance payments as part of the Health and Social Care levy. This will be a welcome cost saving for businesses with employees and benefit the employees with extra pay in their pockets.
Freezing of alcohol duty– Many pubs and restaurants will be pleased to hear the planned rise of 7p on a pint of beer, 4p on a pint of cider, and 38p on a bottle of wine are no longer being actioned. This will allow some breathing room for the hospitality sector.
VAT Free shopping – Whilst announced as a new scheme, this is effectively a U-turn back to the previous system abolished in December 2020 which allows overseas travellers access to VAT free shopping. It is hoped this will encourage holidaymakers to spend more money whilst in the UK and further boost the hospitality sector.
IR35 – For those that operate companies that supply services to other companies previously, caught by the recent introduction of the Off Payroll Working rules - which forced many companies/individuals to revert an employment situation – this will be a welcome repeal. Going back to the old IR35 rules mean it will be easier for businesses to recruit contractors, though advice should still be sought to establish correct status.
Investment incentives
Within the mini-budget there were a few incentives launched designed to encourage businesses to further invest, these include:
Annual Investment Allowance – The amount of tax relief on capital expenditure was due to drop from £1,000,000 down to £250,000 in April 2023. This decision has been reversed and the relief will remain permanently at £1,000,000. For companies, the super deduction rate of 130% is still available until the 31st March 2023, so any CapEx should be reviewed as soon as possible.
New Investment zones – It was announced that 38 new areas in England will be considered for Enterprise Zone status, with local authorities to determine the right locations within their areas. The benefits to business will include business rates relief, National Insurance reductions for new employees and reductions in stamp duty. Watch this space to see if this ultimately leads to growth as no timescales have been set out as yet, other than to say it will go ahead as soon as possible.
Seed Enterprise Investment Scheme – New companies, up to 3 years old can seek equity investment up to £250,000 where the investors could receive 50% tax relief against the value of their investment, in addition to capital gains tax hold over. This is an increase from the current rates of £150,000. HMRC approval is required so do get in touch if this is of interest to your business.
VCT/EIS – The Venture Capital Trust and Enterprise Investment Scheme (older version of Seed Enterprise Investment Scheme) were due to end in 2025, however the government has confirmed an extension will be considered, so will hopefully promote further tax efficient investment within the UK.
Verdict
The mini budget has had a negative impact on the strength of the pound which could lead to further inflationary pressures. That said, as a budget to promote growth in businesses there are a lot of positive measures, whether it achieves its goal only time will tell.
I would strongly recommend pulling together a business plan and cash flow forecast to help drive your business forward over the next 12 months.
If you would like support or advice with regards to any of the issues or new measures discussed above, or for your business in general, please do not hesitate to get in touch.
