UPDATED: Chancellor Jeremy Hunt has announced a multibillion-pound package of business incentives in his Spring Budget 2023 helping small business offset corporation tax rising to 25 per cent from next month.
This Spring Budget 2023 was particularly good news for small business owners working in science and technology, with enhanced R&D tax credits for cutting-edge research in artificial intelligence and fintech, as well as the creation of a dozen investment zones around the country, again aimed at the technology sector.
However the consensus from small business accountants, lawyers and investors working in the SME sector was that Spring Budget 2023 had little for most SMEs unless they were working in those specific tech sectors.
Or as Robert Pullen, partner at accountants Blick Rothenberg put it, this was “very much ‘the tinker budget’. No real substance, all froth”.
What was most glaring was any mention of extending the Energy Bill Relief Scheme for SMEs, despite the Federation of Small Businesses warning that over 350,000 small businesses stand to downsize, restructure or close entirely if their energy bills revert to the higher rates in April.
Another blank was any mention of business rates reform, despite calls for business rates to be abolished in their entirety. Given that business rates raise over £25bn a year for local services, wholesale abandonment wasn’t really an option. The £13.6bn support package announced last November remains in place “but many retail businesses will be disappointed that more radical high street reform isn’t forthcoming,” said Eversheds Sutherland partner Andrew Todd.
Martin McTeague, chairman of the FSB, was particularly scathing, saying that the distinct lack of new support in core areas proved that small firms are overlooked and undervalued.
“Budgets are about tough choices,” he said, “and with today’s billions being allocated to big businesses and households, 5.5 million small businesses and the 16 million people who work for them will be wondering why the choice has been made to overlook them … the Government’s lack of support for small firms in critical areas is glaring.”
Spring Budget 2023 how it affects small business
Genevieve Morris, head of corporate tax at accountants Blick Rothenberg, called the corporation tax rise “bad news” for business, saying that “full expensing” (see below) will only benefit the biggest of companies as most small business will be covered by the £1m Annual Investment Allowance anyway.
Corporation tax will increase from 19 per cent to 25 per cent from April, as first announced by Rishi Sunak in his 2021 Spring Budget as chancellor. The full force of the tax rise will hit businesses with profits of more than £250,000. Companies with profits of between £50,000 and £250,000 will get some relief. And for small businesses making profits of less than £50,000 there will be no change.
Annual Investment Allowance
Smaller businesses have had their Annual Investment Allowance increased to £1m, allowing them to deduct the full value of their investment from taxable profits.
Full expensing business investment
Hunt has replaced the £25bn super-deduction tax break with “full expensing”, which allows 100 per cent of qualifying capital expenditure in the UK to be written off against taxable profits in the year it is incurred.
The Treasury has estimated that “full expensing” would cost £9bn at its peak compared to £25bn for super-deduction but that would fall over time. That is because initially the scheme will include an upfront tax break for new capital spending, alongside allowances for old investment which is currently written off over a number of years.
However, Blick Rothenberg partner Marc Levy said that small businesses are still worse off than having the super-deduction and, if they enjoy less than £50,000 of profits, they are unlikely to exceed the Annual Investment Allowance of £1m anyway.
Meanwhile, the Treasury has announced a dozen “investment zones”, which will enable businesses operating inside them to benefit from enhanced tax relief and lighter-touch regulations. including the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.
The location of these investment zones must show a partnership “between local government and a university or research institute in a way that catalyses new innovation clusters,” Mr Hunt said.
R&D tax credits
The Chancellor has announced a partial softening on measures to slash R&D tax credits for small businesses.
In the Autumn Statement, the Chancellor reigned-in a scheme which allowed start-ups to claim back taxes from their research spending.
Now businesses in the most high tech sectors, including fintech and artificial intelligence, which invest up to 40 per cent of their spending in R&D, will continue to receive an enhanced tax credit worth an extra £27 for every £100 spent.
The Government estimates about 8,000 businesses could benefit, which is about 10 per cent of current R&D tax credit claimants.
This is good news for the thousand companies in the pharmaceuticals and life sciences sectors and 4,000 in sectors such as AI, machine learning and computer programming.
Mr Hunt called this a £1.8bn package of support helping 20,000 cutting-edge companies turning Britain “into a science superpower”.
Commenting on today’s Budget, Yoko Spirig, co-founder and CEO of Swiss-based tech firm Ledgy, which has an office and clients in London, said: “Today’s announcement of an enhanced R&D tax credit scheme for SMEs is positive for the tech ecosystem.
“This reversal, coupled with the UK government’s intervention to support tech businesses through the weekend’s Silicon Valley Bank crisis, shows the UK is still an attractive place for tech firms and will help ensure it stays out in front as a positive example for other European markets.”
The Treasury restricted R&D tax credits for SMEs in the Autumn Statement partly to clamp down on fraud – 5 per cent of last year’s claims worth nearly £500m were fraudulent – and partly to cut down on cost.
However, Aman Behzad of fintech advisor Royal Park Partners, said that restoring R&D support to the wider SME sector is paramount to encouraging the development of new technologies and the long-term success of innovative businesses. “The Government is cutting support in the wrong places,” he said.
While eligible lossmaking tech businesses will be able to claim £27 from HMRC for every £100 of R&D investment, non R&D-intensive lossmaking companies will receive £18.60 from April 1, far below the roughly 33 per cent rebate now offered to small businesses.
Sarah Barber, CEO of Jenson Funding Partners, said: “This will have a significant impact on early-stage tech businesses and Britain’s research capabilities, especially those that cannot devote 40 per cent of their total expenditure to R&D investment.”
Fuel duty frozen again
Jeremy Hunt confirmed that fuel duty will be frozen for another year and the 5p cut in the price of petrol and diesel will remain in force, saving the average driver £100 over the coming year. The chancellor said that this would save the average driver £100 over the coming year. This is the 13th consecutive year that a Conservative chancellor has frozen fuel duty.
Spring Budget 2023 live blog…
13:26: Hunt offers extra incentives for companies investing in research in sectors such as fintech and artificial intelligence. This additional tax support will mean that for every £100 spent on R&D, eligible companies will be able to claim back £27.
13:22: Turning to the problem of getting pre-retirement fiftysomethings back into work, Hunt announces a new kind of apprenticeships called “returner-ships”.
13:14: The UK already houses one third of all artificial intelligence development and Hunt accepts all nine recommendations of Sir Patrick Vallance’s digital technology recommendations, including the launch of an “AI sandbox” to help innovators get products faster to market; £900m in funding to build a new supercomputer; and a £2.5bn quantum computing research programme. He also announces a £1m annual Manchester Prize for the most ground-breaking AI research.
13:12: Hunt turns to science and technology, announcing reform of regulations for medical technologies, including automatic sign-off for trusted overseas regulators and swift sign-off processes. Hunt says he would be providing £10m of taxpayer funding to put in place the new process, which would result in a “rapid, near-automatic sign-off for medicines and technology” already approved in countries such as the US, Japan and elsewhere in Europe from 2024.
13:02: Announces replacement for super-deduction tax break, a new full capital expensing for the next three years. Every pound that a company invests in IT, plant and machinery can be deducted from profits, a measure worth £9bn a year. This full capital expensing will increase business investment by 3 per cent for every year it’s in place, says Hunt. “We need to be Europe’s most dynamic enterprise economy”. I want us to have the most pro business tax repair anywhere.
12:54: Hunt turns to tackling productivity issues and repeats his four pillars of his investment strategy: enterprise, employment, education and “everywhere”. Pointing to Canary Wharf and Liverpool Docks as examples of urban regeneration, he announces 12 new investment zones including the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.
12:48 UK over the last 30 years has become the third-largest technology economy after the US and China. “Growth is the Prime Minister’s third priority and the focus of this Budget,” says Hunt.
12:41: Good news for hospitality as from August 1 duty on draught beer in pubs will be 11p lower than beer sold in supermarkets. “British ale is warm but the duty is frozen,” he jokes.
12:35: Hunt begins his Spring Budget 2023 saying that he intended to remove obstacles that stop businesses investing, helping to make “Britain a technological superpower”.
12:34: OBR says UK will not now enter technical recession. “We are following a plan and the plan is working,” says Chancellor Jeremy Hunt.