UK Budget – What it means for small businesses

Marginally beneficial to small companies and lower paid individuals

The Spring Statement (effectively a mini budget) reduces the tax burden slightly on lower paid and smaller companies. The most relevant announcements to our clients are an increase in the tax-free allowance for National Insurance (beneficial to businesses and employees) and an increase in the Employment Allowance, which adds £1,000 to business profits. These measures, at least for very small businesses offset the increase in National Insurance. The proposed increase in the Corporation Tax rate for larger companies unfortunately remains. However, there are some signs that the Government is reconsidering the future tax landscape and raises the possibility of lower taxes and higher investment incentives.

Summary of policy decisions

The table below summarises the policy announcements that we think will be most relevant to our business clients.

Summary of measures announced at the Spring Statement

MeasureDetailFromNew Announcement
Increasing National Insurance thresholdsNI Primary Threshold and Lower Profits Limit, for employees and the self-employed, will increase from £9,880 to £12,5701 July 22Yes
Reducing Class 2 NICs payments for low earnersSelf-employed people with profits lower than the Small Profits Threshold or Lower Profits Limit will not pay class 2 NICs1 April 22Yes
Increasing Employment AllowanceEmployment Allowance will increase from £4,000 to £5,000/year1 April 22Yes
Reducing basic rate income taxBasic rate Income Tax will reduce from 20% to 19%1 April 24Yes
Temporary cut to fuel dutyCut the duty on petrol and diesel from 5p per litre for 12 months (£0.5795/litre duty on petrol reduced to £0.5295/litre)23 March 22 to 22 March 23Yes
VAT relief for energy saving materialsNew items like wind and water turbines will be eligible for lower VATApril 22Yes
Green reliefs for Business RatesBusiness rate exemptions for: eligible plant and machinery used in onsite, renewable energy generation and storage, etc1 April 23 until 31 March 35No but implementing the measure earlier
R&D tax relief extendedCloud computing costs associated with R&D, will qualify for relief & relief will be extended to some overseas activities1 April 23Yes
Extension of £1m Annual Investment Allowance£1 million level of the Annual Investment Allowance extendedTo 31 March 23Yes

Indications for the future

The Statement also includes a section called “Tax Plan” which gives an indication on the Government’s thoughts for the future. I have pulled out a couple of quotes from this section, which I found particularly interesting, and added some commentary.

“The government wants to create the conditions for the private sector to invest more, train more and innovate more. This includes cutting and reforming taxes to support these aims.”

This seems to be inconsistent with the 2021 Budget in which an increase in tax to 25% was implemented. See here.

Chat on investment …. “The UK needs to build on this momentum to encourage stronger growth in business investment and hence productivity. To achieve this, the government will cut and reform taxes on capital investment to help drive higher growth.”

It’s not clear where this will lead given the ending of the super allowance and the ups and downs of the Annual Investment Allowance

“High skilled immigration plays a disproportionate role in driving innovation; around half the UK’s fastest growing businesses have at least one non-UK-born co-founder, and non-UK born staff account for around 40% of academic staff in engineering, technology, and biological, mathematical and physical sciences at UK universities. That is why the government is focused on creating a visa regime that will attract highly skilled and entrepreneurial individuals from across the world.”

Probably focussed on PHDs and the like and will have little impact on most small businesses.

“The government recognises that employers have frustrations with the way that these Apprenticeship Levy funds can be spent within the apprenticeships system and is delivering a suite of improvements to address these. As part of this, the government is looking at how more flexible apprenticeship training models can be supported, while ensuring apprenticeships remain a high-quality training route for employees of all ages and stages of their career.”

Indicative of more flexible support for employees who take people on and train them.

Concluding comments

Feel free to call me if there is anything you would like to discuss. You can see the Spring Statement documents here.

Marginally beneficial to small companies and lower paid […]

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