Scottish Budget 2023: What it means for small businesses

Deputy first minister and finance secretary Shona Robison has set out the Scottish government's proposed spending and tax plans for 2024/2025.

Here are the measures announced in the Scottish Budget that are relevant for small businesses and the self-employed.

Income tax

Those earning between £75,000 and £125,140 will pay more tax from April 2024 following the introduction of a new 45% tax band. This means Scotland now has six income tax bands compared to three in the rest of the UK.

The top rate of tax, which is paid by people earning more than £125,000, will rise from 47% to 48%.

The Scottish government says these tax increases are being introduced to tackle the £1.5bn black hole in Scotland's finances. The Scottish Budget document says:

"We have not taken our decisions on tax lightly and we recognise the challenging economic conditions that many people and businesses are facing. That is why we are asking those who are best able to contribute more to pay more for a purpose."

The Starter and Basic rate bands will be increased by inflation to £14,876 and £26,561 respectively.

Scottish income tax rates in 2024/25:

• Starter rate (£12,571 - £14,876): 19%

• Basic rate (£14,877 - £26,561): 20%

• Intermediate rate (£26,562 - £43,662): 21%

• Higher rate (£43,663 - £75,000): 42%

• Advanced rate (£75,001 - £125,140): 45%

• Top rate (over £125,140): 48%

Business rates

Business rates paid by premises valued at less than £51,000 will be frozen at 49.5p.

Other rates will rise by inflation: the Intermediate Property Rate, which applies to properties with a rateable value of between £51,001 and £100,000, will be charged at 54.5p, while the Higher Property Rate of 55.9p will be charged on properties with a rateable value above £100,000.

The Scottish government said it recognises "the specific challenges faced by the hospitality sector in island communities" so it will provide 100% business rates relief to those businesses, up to £110,000 value per business.

The Small Business Bonus Scheme, which provides business rates relief to some businesses, will be maintained.

There were calls by hospitality businesses, workers and lobby groups for the Scottish government to replicate the UK government's 75% business rates relief for hospitality, retail and leisure businesses in England, but these calls were rejected. The Scottish Budget document says:

"While we are sympathetic to these calls, replicating this temporary relief would have meant that we could not provide our NHS, schools, or emergency services with the funding that they require.

"We also could not have continued to ensure that over 95 per cent of non‑domestic properties remain liable for the lowest non‑domestic rate in the UK, or provided a package of relief worth £685 million, including the most generous Small Business Bonus Scheme in the UK, therefore maintaining a competitive non‑domestic rates system in Scotland."

The government said it was "committed to working with the hospitality sector, in the New Deal for Business Non-Domestic Rates sub-group, on the long-term issues that have been raised by this sector".

The Scottish Budget confirmed that Enterprise Relief, which is available to some businesses operating in 'Enterprise Areas' in Scotland and due to end on 31 March 2024, will be phased out over the next two years. For example, businesses with a rateable value of £120,000 or less will get 100% relief in 2023/24, 66.7% in 2024/25 and 33.3% in 2025/26.

Entrepreneurship support

The Scottish government will provide £9m to expand the Techscaler programme which supports tech start-ups.

Business funding

The Scottish National Investment Bank will be provided with £177m to "invest in Scottish businesses, projects and communities across all three of the missions set for it by Scottish ministers: net zero, place and innovation".

The bank typically supports businesses and projects seeking more than £1m in debt or equity investment.

Culture and heritage

Funding for culture and heritage will increase by £15.8m. The Scottish government said this is "the first step on the route to investing at least £100 million more in arts and culture by 2028‑29" that was announced at the Scottish National Party conference in October.

Digital connectivity

Investment will be increased from £93m to £140m to boost digital connectivity through steps including connecting over 114,000 more homes and businesses via the R100 broadband programmes.

Business reaction to Scottish Budget 2023

A joint statement by Scottish Tourism Alliance, UKHospitality Scotland, Scottish Beer and Pub Association and Scottish Licensed Trade Association said:

“With estimated consequentials of around £230m coming to Scotland as a result of the 75% rates relief afforded to businesses in England, the Scottish government has squandered a golden opportunity to support one of the country’s most important sectors for the second year in a row.

"The 100% rates relief which has been announced for hospitality businesses in our island communities is welcomed, given the economic disruption these businesses have experienced from years of underinvestment in our ferry infrastructure. However, this measure falls very short of what has been expected. It is an extreme disappointment for tourism and hospitality businesses across Scotland.

“The lack of business support measures will see many thousands of tourism and hospitality businesses facing acute financial challenges in the next year, tipping many into crisis.

“It also entrenches the fact that it is now immeasurably harder to run a hospitality, leisure or tourism business in Scotland, than anywhere else in Britain. This is particularly highlighted by the decision not to support the sector with rates relief, at a time when pubs in Scotland are already closing at twice the rate of those in England.

“Around 10,000 of our businesses will not benefit from the Small Business Bonus Scheme, leaving them unsupported, and this growing gulf with the rest of Britain will cost jobs, economic growth, investment and, ultimately, tax revenues which are needed to fund public services.

“The announcement of a new income tax band will also hit our sector's ability to recruit senior and highly experienced candidates from elsewhere in the UK and potentially retain our emerging leadership talent. Businesses already report that it is challenging to fill vacancies, with higher tax in Scotland being a barrier.

“One positive is the decision to freeze the poundage, which keeps another multi-million price rise at bay for now, but this will simply maintain the status quo of already extortionate business rates.

“The Scottish government must now work closely with businesses, as promised in the Budget announcement, to bring forward a clear strategy for economic recovery and growth, including delivering on its commitment to reform business rates through careful examination of the methodology as a starting point."