Budget 2023: What small businesses need to know
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Posted: Wed 15th Mar 2023
Chancellor Jeremy Hunt has announced his 2023 Budget, to which a panel of small business owners and experts reacted live.
Hunt described his speech as “a budget for growth”.
He said the UK is now not predicted to enter a technical recession with the Office for Budget Responsibility saying that the economy will shrink by 0.2% next year, better than was previously forecast.
Although inflation is expected to reach 2.9% by the end of the year compared to 10.7% in the final quarter of 2022, living standards are still predicted to decrease by the largest amount since records began.
Enterprise Nation's reaction: Slim pickings for small businesses
Emma Jones, founder of Enterprise Nation, said:
"Today's Budget was touted as one for growth but there's not much small businesses will have taken from it.
"While small firms are busy creating the jobs, the news that returning mothers and returnships for the over 50s may help them fill their vacancies will be welcome - but no amount of tax tinkering can make up for the incremental rise in corporation tax that hits well before £250,000 in profits and effective slash in their incomes especially when energy costs are still so high.
"What we would have liked to see were measures on how small businesses can be supported to boost digital adoption, how Brexit freedoms could be used to help them sell their wares to the world, and to secure contracts with government.
"The announcement did confirm a long-coming change in the landscape of business support with local economic decisions moving from Local Enterprise Partnerships to local councils. This spells significant change and it's not clear how local councils will handle this.
"This was a Budget for the high growth industries and returning workers. It makes the case for the government to see businesses as distinct; those with 0-10 employees who make up the majority of the economy, and the rest. Enterprise Nation remains firmly on the side of start-ups, micro and small business owners who are looking at what a national Budget can do for them."
What small businesses need to know about the Budget
Here are the measures of interest to small businesses in the chancellor’s speech and the full 122-page Budget document.
Corporation tax increase
Despite calls by many organisations, including Enterprise Nation, to scrap it, Jeremy Hunt confirmed that the increase in corporation tax from 19% to 25% for businesses with profits over £250,000 will go ahead from 1 April.
Businesses with profits below £50,000 will pay a 19% small profits rate. Businesses with profits between £50,000 and £250,000 will pay the main rate reduced by a marginal relief which provides a gradual increase in the effective corporation tax rate.
Enterprise Nation's view is that the corporation tax increase should be reconsidered due to the impact on small businesses:
The sliding scale of the marginal rate means firms that make more than £50,000 in profit are already impacted by high taxation. Experts point to the fact that incremental increases can attract up to 26.3% in tax. Our members tell us the increased taxation on profit is misunderstanding the small business mindset and risks not only deterring expansion, but also overseas investment at a time when the economy needs to see dramatic growth.
Energy support
The Energy Price Guarantee (EPG) for a typical household has been extended for an additional three months from April to June 2023. It will stay at £2,500 per year in Great Britain which the government said will save a typical household £160. In Northern Ireland, the EPG is £2,109.
A £63m fund will be launched in England to help leisure centres with the immediate costs of heating swimming pools and becoming more energy efficient in the long term. The grant scheme will be run by Sport England and delivered by local authorities.
The government has not extended the Energy Bills Relief Scheme which provides up to 50% discount on energy bills for businesses. The Budget confirmed that it will be replaced with the previously announced Energy Bills Discount Scheme from 1 April. This provides significantly reduced support.
Research and development
The Autumn Statement last November announced that for expenditure on or after 1 April 2023, the SME R&D tax relief scheme will decrease from 130% to 86%, while the SME credit rate will decrease from 14.5% to 10%.
That move received much criticism. The Budget partially reverses the change but it only focuses on a small proportion of businesses. From 1 April 2023, the government will introduce an increased rate of relief for loss-making R&D intensive SMEs. This applies to around 20,000 companies investing at least 40% of their spending in R&D. They will receive £27 from HMRC for every £100 of R&D investment.
The government said it is considering the responses to its consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes. No decision has been made but it says it "intends to keep open the option of implementing a merged scheme from April 2024".
Full expensing allowance
In the March 2021 Budget, the government introduced the super-deduction to encourage companies to invest. This ends on 31 March 2023. In its place will be a new full expensing first year allowance, which runs from 1 April 2023 until 31 March 2026. This is less generous than the super-deduction but it means that companies will be able to write off the full cost of qualifying main rate plant and machinery investment in the first year of investment.
Enterprise Nation’s Budget panel questioned the value of this for small businesses.
50% first year allowance (FYA)
The FYA, which allows businesses to deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase, will be extended by three years to 31 March 2026.
More details on capital allowances and R&D reliefs here.
Creative industries tax reliefs
The government said it will reform the audio-visual tax reliefs into expenditure credits with a higher rate of relief than under the current system.
For the audio-visual expenditure credit, film and high end TV will be eligible for a credit rate of 34%. The video games expenditure credit will also have a credit rate of 34%, while animation and children's TV will have a credit rate of 39%.
The expenditure threshold for high-end TV will remain at £1m per hour.
The government will extend the temporary higher tax relief rates of 45-50% for theatre, orchestras, museums and galleries for another two years from April 2023.
Funding of £8.6m is being given to the Edinburgh festivals, which the government said "could help build a permanent headquarters for the Edinburgh Fringe Festival and create year-round opportunities for local artists and talent across Edinburgh festivals".
Seed Enterprise Investment Scheme
A policy paper released alongside the Budget confirmed the previously announced increases to the limits in the Seed Enterprise Investment Scheme which encourages investors to back start-ups by providing tax relief.
From 6 April 2023, the following increases will be introduced:
The ceiling that applies to the investment a company can raise in the relevant period and on which investors can claim relief - from £150,000 to £250,000.
The limit that applies at the date of investment on the "gross assets" a company can have - from £200,000 to £350,000.
The age limit that applies to the definition of a company's "new qualifying trade" at the date of investment - from two years to three years.
The annual limits that apply to the investment amount on which individuals can claim income tax and CGT re-investment reliefs - from £100,000 to £200,000.
Ahead of the Budget, several organisations called on the chancellor to confirm that the enterprise investment scheme (EIS) and venture capital trusts (VCT), which also provide tax relief for investors, will be extended beyond the current expiry date of April 2025. The Budget did not mention these schemes.
Reducing customs red tape
The Budget includes measures aimed at simplifying the paperwork work exporting businesses need to deal with.
The number of excise authorisations firms need to complete will be reduced from 42 to five, and businesses will be given six more days to submit supplementary declarations.
Traders currently have to submit declarations on the fourth working day of the month but the changes mean they can submit them on the 10th calendar day of the month. The government claimed the move will make it easier to group declarations together and cut the amount of paperwork required.
Childcare, unemployment and returners to work
Jeremy Hunt unveiled several measures aimed at getting unemployed people into work:
free childcare for working parents in England will be extended to all children over nine months. The policy currently provides 30 hours of free childcare per week for 38 weeks of the year to working parents of three and four-year-olds. The change will be introduced in stages. From April 2024, all working parents of two-year-olds can access 15 hours per week. From September 2024, all working parents of children aged between nine months and three-years-old can access 15 hours per week. From September 2025 all working parents of children aged between nine months and three-years-old can access 30 hours free childcare per week. Equivalent funding will be provided to Scotland, Wales and Northern Ireland.
the childcare staff-to-child ratios in England for two-year-olds will move from 1:4 to 1:5 to align with Scotland and comparable countries. The ratios will be optional, with no obligation on providers to adopt them.
the hourly rate paid to providers of free childcare will increase in England from 2023/24, paid from September 2023. The rise will be from around £6 to £8 per hour for two-year-olds and from £5.29 to around £5.50 for three and four-year-olds.
to encourage more childminders, those who register with Ofsted will receive a start-up grant of £600, while those who register with a childminder agency will receive £1,200.
school and local authorities will be funded to increase the supply of wraparound care, so that parents of school age children can drop their children off between 8am and 6pm.
parents on Universal Credit will receive childcare support up-front when they are moving into work or increasing hours, rather than in arrears. The government said this will help to remove a barrier to work for low-income families.
the maximum amount parents on Universal Credit can receive in childcare support will increase from £646 to £951.
over 100,000 claimants will be asked to attend more regular meetings with work coaches.
for the over 50s, ‘returnerships’ will offer skills training that focuses on flexibility and takes previous experience into account, shortening the length of time they have to be in training.
skills bootcamps will be expanded by 8,000 places per year in 2024-25, up from the current 56,000.
the government intends to scrap the Work Capability Assessment which disabled people must undertake in order to receive additional income support. The government said the changes means that disabled people can try work "without fear of losing their benefits, and reducing the number of assessments needed to qualify for health-related benefits". This move is part of a Health and Disability White Paper which outlines the government's plans to reform the welfare system for disabled people.
Tax simplification
The government will launch a consultation to review tax guidance and forms to make them easier for small businesses. The full Budget document says:
"The government will ensure guidance is clear, simple and easy to find, introduce step-by-step interactive guidance and modernise HMRC forms to improve the customer experience.”
The government has launched a consultation on expanding the cash basis which is a simplified way for sole traders to calculate and pay income tax. The full Budget document says:
"The government is interested in ways to increase the number of eligible businesses and how to increase use of the cash basis within the eligible population, to ensure as many businesses are benefitting from this simplification."
Changes to the Enterprise Management Incentives (EMI) scheme will be introduced aimed at simplifying the process to grant options and reducing the administrative burden for businesses. This includes, from 6 April 2023, removing requirements to sign a working time declaration and setting out details of share restrictions in option agreements.
Local business support and regional growth
The government said it is "committed to empowering democratically elected local leaders at every opportunity" and will transfer the functions of England’s Local Enterprise Partnerships (LEPs), which deliver business support, to local government.
As a result, central government intends to withdraw support for LEPs from April 2024. There will be a consultation on these proposals before a final decision is made.
Over £200m funding has been provided for regeneration projects in areas of need, including turning Ashington Town Centre into a skills and education campus in Blackburn.
Over £400m funding for new “Levelling Up Partnerships” in 20 areas in England, such as Rochdale and Mansfield.
Business rates retention will be expanded to more areas in the next Parliament.
Investment zones
Jeremy Hunt announced that 12 investment zones will be established to provide tax incentives and other benefits to businesses.
The zones will be clustered around research Institutions such as universities and will be focused on growth in technology, creative industries, life sciences, advanced manufacturing or the green sector.
Funding of £80m will be provided to each zone for tax reliefs, improving skills, providing specialist business support, improving the planning system, or boosting local infrastructure.
In England, eight zones will be in:
The proposed East Midlands Mayoral Combined County Authority
Greater Manchester Mayoral Combined Authority
Liverpool City Region Mayoral Combined Authority
The proposed North East Mayoral Combined Authority
South Yorkshire Mayoral Combined Authority
Tees Valley Mayoral Combined Authority
West Midlands Mayoral Combined Authority
West Yorkshire Mayoral Combined Authority
The government said it is working with the devolved administrations on setting up four investment zones in Scotland, Wales and Northern Ireland.
Alcohol duty
Alcohol duty will rise with inflation from 1 August. It means a 44p increase on a bottle of wine, 97p on a bottle of sherry, 76p on a bottle of vodka and £1.30 on a bottle of port.
Duty has been frozen on draught beer in pubs. The chancellor said this means draught products will be up to 11p lower than the duty in supermarkets. He described it as "a new Brexit pubs guarantee", before declaring: "British ale is warm, but duty on a pint is frozen!".
Fuel duty
Fuel duty has been frozen for another 12 months.
Pensions
The annual pensions tax-free allowance will increase from £40,000 to £60,000.
The lifetime pensions allowance, currently set at £1.07m, will be scrapped.
AI Challenge Prize
The government said it will award a £1m prize every year for the next 10 years to researchers that drive progress in critical areas of artificial intelligence (AI).
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