Mini Budget – what it means for small businesses

Chancellor Kwasi Kwarteng announces raft of measures to boost business growth, including scrapping planned corporation tax and National Insurance rises, raising the limit on Seed Enterprise Investment Scheme investment, and creating low-tax investment zones to encourage new industry

UPDATED: Chancellor Kwasi Kwarteng has announced £50bn worth of tax cuts in his mini Budget, described as the most pro-business Budget this century, including abolishing the 45 per cent top rate of tax for those earning over £150,000, scrapping the rise in national insurance, freezing corporation tax and cutting stamp duty.

Nicholas Hyett, investment analyst at Wealth Club, said: “Small innovative businesses are key to the government’s 2.5 per cent economic growth target, and creating the high value jobs that will drive wealth creation more broadly.”

Nigel Holmes, director of tax at innovation funding specialist Catax, said: “The Government trailed a pro-business and pro-growth mini-budget and they threw the kitchen sink at it … the Government trailed a pro-business and pro-growth mini-budget and they threw the kitchen sink at it … for business, there’s suddenly lots to smile about … businesses up and down the country will be delighted with what they heard.”

Scott Gallacher, chartered financial planner at Leicestershire-based independent financial advisers Rowley Turton, said: “This was a very aggressive tax-cutting budget from the new Chancellor … the big question is whether these tax cuts will generate sufficient growth to off-set the tax the Chancellor has given up. It’s a big gamble from Kwarteng and, if it doesn’t come off, it’s one that we could all be paying for for years to come. Fingers crossed he’s right.”

We look at how the mini Budget affects small businesses.

Cancelling planned increase to corporation tax

The UK’s corporate tax rate will not rise to 25 per cent – it will remain at 19 per cent, the lowest rate of corporation tax in the G20. The reversal will cost an estimated £17bn, according to The Times. However, the Institute for Public Policy Research (IPPR) has doubts – the UK had the lowest business investment of all the G7 in 2019 despite having the lowest corporation tax of these countries.

But the former Chancellor’s proposal to increase corporation tax to 25 per cent would only have applied to those making profits of £50,000 or more, which is approximately 70 per cent of businesses. For a significant number of the UK’s 5.6 million small to medium sized businesses, profits fall well short of this threshold.

National Insurance rise cancelled

The increase in Employer National Insurance Contributions and dividends tax to pay for a Health and Social Care Levy has been cancelled. And the interim increase in the National Insurance rate, brought in for this tax year will also be cancelled. This cut will take effect from November 6.

Annual Investment Allowance

The annual investment allowance for businesses will be permanently set at its highest level of £1m from April 1 next year. This will give 100 per cent tax relief to businesses on their plant and machinery investments up to the level of £1m.

>See also: Energy Bill Relief Scheme – how it works

‘Investment zones’ where businesses could benefit from less red tape

The government is in talks with 38 local and mayoral combined authority areas in England to set up new investment zones. The zones will offer targeted and time-limited tax cuts for businesses in a bid to increase productivity and create jobs. Work will also begin with Scotland, Wales and Northern Ireland to agree zones in these locations.

Cut in VAT

The Telegraph also reports that Truss is considering a reduction in VAT from 20 per cent to 15 per cent across the board.

IR35 to be simplified

The Chancellor committed to repealing reform of IR35, which treats independent contractors the same as employees for tax purposes but without giving them the benefits that employment provides. However, he stopped short of scrapping IR35 altogether. The IR35 reforms, which rolled into the public and private sectors in 2017 and 2021 respectively, will no longer apply from April 2023. Instead, the original rules will remain, and contractors will be responsible for assessing their own tax.

Dave Chaplin, CEO of tax compliance firm IR35 Shield said: “Today, contractors and businesses will be celebrating as Liz Truss and her government have not only kept to their promise but gone further and repealed a legislation that has had a damaging effect on business and contractors’ livelihoods for the past five years.

“These onerous reforms were never going to work and were flawed from the start … the Chancellor has done the right thing and removed an unnecessary burden for firms of trying to solve a complex riddle every time they hire a worker.”

Emma Jones, CBE, founder small business support platform Enterprise Nation, said: “Thanks to the removal of IR35, many experienced individuals that left the employment market will now return.”

However, John Chaplin, employment tax partner at BDO, pointed out that the current IR35 rules were however implemented to tackle non-compliance with the old rules. “If the clock is turned back, will we simply have a return to non-compliance? While compliant businesses and contractors are in a healthy position, today’s announcement could help open the door to those wishing to promote tax avoidance.”

EIS/VCT extended and SEIS fundraising limit raised

The seed enterprise investment scheme (SEIS) has been widened, including allowing firms to now raise £250,000 under the scheme — 66 per cent more funding than previously.

Tim Mills, managing partner at ACF Investors, said: “In a statement with a very welcome focus on growth and the future of UK economic success, the chancellor has given UK startups a major boost by guaranteeing the future of the EIS scheme, which provides £1.7bn a year in funding for some of the UK’s highest-growth businesses.”

VAT-free shopping for tourists

Tourists visiting the UK will be able to benefit from VAT-free shopping.

Alison Horner, indirect tax partner at MHA, said the policy is a good one with the relative weakness of sterling, which already makes the UK an attractive tourist destination. Previously, tourists from outside the EU could qualify for tax-free shopping – But today’s announcement extends that to anybody visiting from outside Britain. But VAT-free shopping could be tricky to implement, given that it involves a new digital system and HMRC’s record when it comes to rolling out new tech is patchy.

Company share option plan

The company share option plan (CSOP) limit that allows businesses to offer employees share options is being raised from £30,000 to £60,000.

What the Chancellor left out…

VAT rate for business

Today’s announcement made no mention of a reduced VAT rate for businesses. Glenn Collins, head of accounting body ACCA UK said VAT cuts would have provided businesses, and in particular the hospitality sector, a fighting chance at moving towards post-pandemic recovery.

Collins said: “As we saw during the pandemic, targeting lower rates of VAT at businesses helped to give them a boost after the various lockdowns. Now with rising inflation, consumers are cutting back on discretionary spending.”

Business rates

Business rates were largely ignored. Business rates are one of the highest outgoings for occupiers of property. The tax raises around £32bn a year gross (£26bn net) and with rates rising in line with CPI inflation levels for September predicted to be around 10 per cent, this could potentially cost businesses an added £3bn.

John Webber, head of business rates at Colliers, said: “It’s all very well giving reassurance over high energy bills and other taxes, but all this will be meaningless if business rates are allowed to soar.”

Fuel Duty

Kwasi Kwarteng has not matched significant fuel duty cuts across Europe and did not promise to keep former Chancellor Rishi Sunak’s 5p cut in duty. Howard Cox of FairFuelUK described the mini Budget as “the economics of an asylum. The ignorance is jaw dropping!”.

Late payments

No mention was made of beefing up the role of the Small Business Commissioner, responsible for chasing down persistent late payers when it comes to small businesses.

Alex von Schirmeister, UK managing director of Xero, said: “The issue of late payments has become more severe during economic uncertainty – putting smaller firms’ viability at the whim of whether their larger customers can pay them on time.”

Mini Budget live blog as it happens

10:02: VAT free shopping for overseas visitors with a simplified digital system.

10:01: IR35 reforms for the self-employed to be abolished.

10:00: EIS and VCT investment schemes will be extended beyond 2024, while investment cap on Seed Enterprise Investment Scheme (SEIS) will be increased.

9:59: Annual Energy Allowance will remain at £1m

9:58: Next year’s planned corporation tax rise will be cancelled, remaining at 19 per cent, the lowest rate of corporation tax in the G20, potentially releasing £19bn for reinvestment.

9:57: Tax investment for investment zones with 40 sites identified.

9:56: New investment zones, releasing land and accelerating development. Tax relief for businesses and plant and machinery. No business rates for newly cited businesses.

9:55: Up to £500m for new innovative funds for digital technology and scale-ups.

9:45: The Government will accelerate reforms to the Pension Charge Cap which will unlock pension funds into high-growth business.

9:45: Kwarteng says there are too many barriers to entrepreneurialism and part of the problem is infrastructure, beginning with in the coming months planning reforms, cutting red tape and publishing a list of transport, energy and telecoms infrastructure.

9:39: Kwarteng announces threefold energy strategy:

  • The energy price guarantee will limit price to £2,500 for households over the next two years, utting household energy bills by £1,000 this year.
  • Energy Bill Relief Scheme will reduces business energy bills – a price guarantee equivalent to all households.
  • 100 per cent guarantee for banks to offer emergency liquidity to energy traders.

Hello and welcome to Small Business’s live coverage of today’s mini Budget, which will be continuously updated as the Chancellor speaks

Read more

Ensure your contract keeps you out of IR35

Avatar photo

Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.

Related Topics

The Budget