As expected, Chancellor Jeremy Hunt has hit small business owners with tax increases in this morning’s Autumn Statement.
The Chancellor announced £24bn of tax rises and £30bn of public spending cuts delivering his Autumn Statement in the House of Commons this morning.
The 45 per cent top-rate of tax, which former Prime Minister Liz Truss and Chancellor Kwasi Kwarteng tried to abolish less than two months ago, will now kick in at income of £125,000 rather than £150,000.
Allowances and thresholds for income tax, National Insurance and inheritance tax will be frozen until April 2028, two years longer than previously planned.
Simon Montgomery, COO at identity verification provider ID-Pal, said: “Today’s tax reforms will no doubt impact small businesses, who will see their tax bills rise on top of existing pressure from inflation and rising energy costs. While global tech companies dominate the headlines with their cost-cutting measures, it’s the smaller businesses that will feel the impact from these increases the most.
Autumn Statement what it means for small business
Despite confirming the revaluation of business properties will go ahead next year, plans to increase business rates by 10.1 per cent from 2023 have been scrapped and the total tax take will instead be frozen.
The Chancellor also announced that this year’s 50 per cent discount for retailers, leisure and hospitality will be extended for another 12 months and increased to 75 per cent – although only up to a maximum of £110,000 per business. The Treasury said this would benefit 230,000 properties and cost £2.1bn.
Richard Godmon, tax partner at accountancy firm, Menzies, said: “The Chancellor confirmed that the revaluation of business properties will go ahead next year, as planned, to reflect changes in property values. However, this will be implemented along with a package of support over the next five years to help businesses transition to their new bills.”
Jerry Schurder, business rates policy lead at property experts Gerald Eve said: “Finally, after countless reviews and consultations, it is good to see the Government waking up to the problems facing our high street and of the damage being caused by the much reviled business rates system.
“Until today’s intervention, businesses were worried their rates bills would be going up 10.1 per cent next year in line with inflation – the biggest jump in 32 years – so, they will be delighted that this won’t happen.”
Freezing VAT threshold
The Chancellor will hold the threshold at which businesses must register to pay VAT at £85,000 of turnover until 2026 – a stealth tax raid on small businesses which will force thousands more to pay VAT as he tries to balance the country’s books, according to the Daily Telegraph.
Thousands more small businesses will have to pay VAT for the first time as their turnover increases in line with rising prices, which, says Robert Salter of Blick Rothenberg, will simply discourage many businesses looking to expand.
Capital Gains Tax
The Annual Exempt Amount for Capital Gains Tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024, dragging tens of thousands in to paying the tax – a concept called “fiscal drag”. The reduction to the capital gains annual exemption to £3,000 from April 2024 will cost up to £2,604 in CGT, according to Blick Rothenberg
Capital Gains Tax (CGT), which small business owners pay when they sell their company, is expected to raise £15bn in 2022-23, or 1.5 per cent of all receipts. This figure will increase by approximately £1.2bn from April 2025 due to today’s announcement. About 300,000 people a year currently pay CGT when they sell an asset for a profit.
The headline rates have stayed the same. Founders currently pay 10 to 20 per cent when they sell out.
Praveen Gupta, national head of tax at accountancy firm Azets, predicted “a bargain hunt” among British businesses as owner consider a sale in the next 12 months to avoid paying more CGT. Potential buyers, he said, would be able to capitalise on cut-price deals for long-term investments.
The government has mounted a multibillion-pound raid on income from shares. The tax-free dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024.
The cut to the dividend tax allowance to £1,000 will cost a basic rate taxpayer £87.50; a higher rate taxpayer £337.50 and an additional rate taxpayer £393.50, according to accountants Blick Rothenberg.
The cut to the dividend allowance to £500 from April 2024 means it is now only one tenth of the £5,000 allowance when it was introduced in 2016.
Some point out that taxes on company dividends mean double taxation for self-employed sole traders, as they already pay tax on company profits before the taxman dips its fingers into dividend income.
Hadyn Rogan, partner and tax law specialist at Weightmans, said: “This will likely disproportionately impact small businesses and could have a potentially harmful impact on the economy, as the cut in the allowance combined with the earlier corporation tax increase will significantly increase the tax burden on many businesses.”
Chris Ramsbottom, director of Coventry-based small business The Amethyst Centre, was damning: “By cutting the tax relief on director dividends, the Tories have really got it in for us company directors haven’t they? Not content with leaving us to our own devices during the pandemic, they now want to make sure we pay for their mistakes.”
One of the biggest increases in taxation — freezing national insurance thresholds for businesses — will take effect from April 2023. Companies have to pay 13.8 per cent in National Insurance contributions on earnings of all workers over £9,100 per year. The Government has frozen this threshold until 2027-28, which will raise £5.8bn by 2028, meaning companies paying more over the coming years for each person they employ.
R&D tax credits
In today’s Autumn Statement, the Government announced cuts to R&D tax credits for UK’s SMEs and start-ups.
The R&D tax credit for SMEs will decrease from 130 per cent to 86 per cent from April 2023. Going forward, the R&D tax credit will be worth only 18.6p for every pound of R&D spend compared with the current 33.3p.
Penny Simmons, legal director at law firm Pinsent Masons, the multinational law firm said the changes will cost SMEs £4.5bn in lost tax benefits over the first five years of the changes.
At the same time, plans to increase the rate of Research & Development Expenditure Credit from 13 per cent to 20 per cent is likely to benefit predominantly larger businesses.
Hunt said that the Government would work with industry to understand what further support R&D intensive SMEs may require.
The R&D tax credit scheme is meant to incentivise small and medium-sized businesses to innovate. In the year to March 2020, £7.4bn of support was claimed via 85,900 claims through the programme, an increase of 16 per cent from the previous year thanks to more claims from small businesses.
The Financial Times reported that the Treasury fears that without reform, the small business scheme alone could cost the taxpayer nearly £9bn by 2027.
Sarah Barber, CEO of Jenson Funding Partners, said: “Lots of entrepreneurs will be breathing a sigh of relief today. Rumours of major changes to R&D tax credits and tax relief schemes for high-growth businesses like EIS and SEIS have failed to materialise.”
However, Genevieve Morris, head of corporate tax at Blick Rothenberg, was not so sanguine.
Morris said: “A shame that the Chancellor tars all the SME community claiming R&D tax credits with the same brush – apparently they are all fraudsters, so the R&D reliefs will be cut – not a measure to help support innovation and development.”
Mark Tighe, CEO of innovation funding specialist Catax, was scathing about the change announced to SME R&D tax relief, which he said represents a screeching U-turn. As late as 2015, HMRC was running publicity campaigns to encourage more SMEs in particular to claim.
Tighe said: “It has taken industry two decades to get SMEs to realise that they’re an important part of the innovation pie … no government in their right mind should be ripping the carpet out from underneath those firms still willing to embark on these kinds of projects in the face of a long recession.”
National Living Wage
The National Living Wage will increase by 9.7 per cent next year. From April 2023, the hourly rate will be £10:42, which represents an annual pay rise worth over £1,600 to a full-time worker.
Investment zones scrapped
Hunt’s predecessor Kwasi Kwarteng announced in his mini-Budget that the UK would be establishing 200 investment zones with holidays on business rates and employers’ National Insurance contributions for new workers earning less than £50,000 a year. The investment zones would have cost Government £12bn a year in lost tax revenue. Instead, the Government “will now focus on leveraging our research strengths, to help build clusters for our new growth industries”.
Research & Development budget
Jeremy Hunt confounded expectations by protecting the Government research and development budget at 2.4 per cent of GDP and increase public funding for R&D to £20bn by 2024-25.
Growth industry regulation
Chief scientific adviser Sir Patrick Vallance will lead an investigation into how Government can reform legislation to better support emerging technologies in five sectors: digital technology, life sciences, green industries, financial services and advanced manufacturing.
Energy Bill Relief Scheme
There was no mention of what will happen to the Energy Bill Relief Scheme for businesses post April 2023. According to digital marketplace Ankorstore, nearly 90 per cent of independent retailers believe they will suffer if there is no extension to the Energy Bill Relief Scheme, with nearly half (42 per cent) saying this would cause them to close or consider closing.
12:21pm: National Living Wage will be increased by 9.7 per cent to £10:42 per hour from April 2023, affecting over 2 million low-paid workers and which represents an annual pay rise worth over £1,600 to a full-time worker.
12:20pm: Household energy price cap will be lifted to £3,000 from April 2023, still saving every family £500 compared to what they would pay.
12:15pm: Hunt announces technology push to “turn our world class innovation into world class companies … turning Britain into the world’s next Silicon Valley”. Announces a review led by Sir Patrick Vallance into what can be done to encourage key growth industries including digital, life sciences, green energy and financial services.
12:12pm: Hunt sets a new target of reducing energy consumption from buildings and industry by 15 per cent by 2030 investing £6.6bn in funding to achieve this.
12:10pm: Hunt announces a £13.6bn business rates relief package to counter the rise in the levy for hundreds of thousands of companies set to take place in April next year. Hunt says that the five years temporary relief scheme means that two-thirds of properties would not need to pay any more in business rates next year.
12:08pm: Hunt says “We need economic growth – you cannot borrow your way to growth. Sound money is the rock on which long-term prosperity rests.” Cheap low carbon energy must sit at the heart of any economy, says Hunt, who announces a £700m investment in the Sizewell C nuclear facility. Currently, 40 per cent of the UK’s energy comes from renewables.
11:48am: £14bn of tax cuts for business rate payers over the next five years, although the general business rates rise will go ahead. Two thirds of businesses will not pay any more business rates tax next year, affecting 7,000 businesses.
11:46am: R&D tax relief cut as expected. Allowances on National Insurance and inheritance tax will also be frozen for the same period to raise more money for the exchequer.
11:43am: The dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024. The Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.
11:38am: Hunt says “stability, growth and public services” are his priority in consolidating £55bn of debt, making the recession shallower. Total fiscal tightening will be about £55bn divided roughly equally between spending cuts and higher taxes. Hunt said that his predecessor Kwasi Kwarteng was correct in identifying growth as a priority.
11:20am: Good morning and welcome to our live coverage of Chancellor Jeremy Hunt giving his Autumn Statement and how it affects small business. We will be covering the Chancellor’s statement as he delivers it this morning and update throughout with reaction from small business experts as it comes in.