What the UK Spring Budget Means for Your Small Business

In this article, you’ll find a rundown of the main updates from the 2023 UK Spring Budget. We also picked expert accountant Gordon Scammell’s brain to find out what small business owners should know off the back of the announcement.

• Incentives and reliefs over rates and allowances.
• Deployment of Jeremy Hunt’s Four E’s — will these four pillars spur economic growth and prosperity?
• Bring on “the most competitive tax regime of any major country.”
• 5p fuel duty cut to extend for another year.
• Twelve new investment zones to aid underperforming areas with high potential.
• Major childcare reforms.

The Chancellor of the Exchequer Jeremy Hunt announced the 2023 UK Spring Budget to the House of Commons on Wednesday 15 March.

The Prime Minister and the government aims to “halve inflation, reduce debt, and get the economy growing”.

Halve inflation

The OBR has predicted that inflation will fall from 10.7% to 2.9% by the end of 2023.

Reduce debt

1. Underlying debt is forecast to be 92.4% of GDP next year, then 97.3%, 94.6%, and 94.8%, before falling to 94.6% in 2027/28, the fifth year of the forecast.
2. Public sector net borrowing is forecast to fall below 3% of GDP over the next 5 years — falling from 5.1% of GDP in 2023/24, to 3.2%, to 2.8%, to 2.2%, to 1.7% in 2027/28. The last 2 years see the current budget in surplus, borrowing only for investment and not day-to-day spending.

Get the economy growing

1. London beats New York and 53 other global cities to be the best place in the world for female entrepreneurs.
2. Britain has become the world’s third trillion-dollar tech economy after the US and China.
3. The UK economy is set to grow year-on-year by 1.8% in 2024, then 2.5%, 2.1%, and 1.9% in 2027.

The government are also calling for incentives and reliefs over rates and allowances this time around.

What Do The Four E’s Really Mean?

Not quite ‘Everything Everywhere All at Once’, and certainly met with more criticism. Here’s our breakdown of what Jeremy Hunt’s four pillars of economic growth and prosperity could represent.

• Enterprise — deployment of incentives and reliefs aimed at achieving economic and fiscal ambitions to make the UK a real contender against EU competition.
• Education — reskilling and retraining across all age groups, and a call for increased English and maths skills among young people — making maths compulsory until 18.
• Employment — a call for retirees to return to work in conditions that make their work worthwhile, and an updated points system for skilled worker visas to tackle labour shortages in sectors such as hospitality.
• Everywhere — twelve ‘Investment Zones’ will give equal opportunities for success to high potential but underperforming areas.

A Budget For Growth: What Were the Major Announcements of the Spring Budget?

The “Super-Deduction” successor

The Chancellor wants Britain to have the most pro-business, pro-enterprise tax regime anywhere. ‘Super-deduction’ ends this month, with smaller businesses benefitting from the annual investment allowance that increased to £1 million. This means 99% of all businesses could deduct the full value of their investment from the year’s taxable profits.

Following on from “super-deduction”, Mr Hunt announced a new policy of full capital expensing for the next 3 years, with the intention of putting the policy into permanent effect when it is fiscally sensible to do so.

Every pound a company invests in IT equipment, plant and machinery can be deducted in full and immediately from taxable profits. That’s a corporation tax cut worth around £9 billion a year for the three years it’s in place.

It should increase business investment by 3% per year, according to the OBR’s predictions. A survey by CBI found that creating a new permanent investment deduction “could boost UK business investment by up to £40 billion a year by 2026”.

Here’s the expert’s take:

“This one's cleverly worded, to be honest. He’s talking about annual investment allowance. Let’s say you buy a laptop for £1500. In year one, you can claim that £1500. What he's neglected to say is that for the last two years, we've had what we call the “super-deduction”, available to help kickstart after COVID. That meant you could claim 130% on certain asset purchases. That’s phased out from 31 March.“

12 new investment zones

The government aims to introduce 12 new investment zones, “12 potential Canary Wharfs”. The following areas have been identified as promising options:

1. West Midlands
2. Greater Manchester
3. The North East
4. South Yorkshire
5. West Yorkshire
6. East Midlands
7. Teeside
8. Liverpool

There’s also set to be at least one investment zone in Scotland, Wales, and Northern Ireland.

Each area must identify a location where they can offer a bold and imaginative partnership between local government and a university or research institute in a way that takes advantage of new “innovation clusters”. The investment zones will work alongside the Treasury’s “innovation clusters” like Glasgow, Greater Manchester, and Birmingham and will likely receive the funding to hoist them onto the world’s R&D stage.

The zones will receive £80m in funding and tax incentives. The aim is to level up these zones by improving skills, and planning systems, providing business support, and boosting local infrastructure, tax reliefs and business rates retention.

Gordon’s thoughts

“I'm assuming that we're looking at job creation is really what he's pushing for here for sectors to provide further investment in terms of tech companies, all those kinds of things. It's just a push to really spread out the knowledge, as it were, throughout the country, rather than have everybody centred around London.”

Extending the fuel duty 5p cut for another year

The Chancellor of the Exchequer announced that it was not the right time to up-rate the fuel duty in line with inflation. Instead, the 5p cut will be maintained, and fuel duty will be frozen — saving the average driver £100 next year and £200 overall since the 5p cut was introduced.

Enhanced R&D tax credits scheme

If a qualifying SME spends 40% or more of their total expenditure on R&D, they’ll be able to claim a credit worth £27 on every £100 spent, that is to say, 27%.

Gordon’s thoughts

“There's an increase in the R&D credit line that they're producing. So you'd still have to fit in the criteria they're looking for, but there is greater incentive to do r&d in the tech sector certainly.”

Occupational healthcare subsidies for SMEs

A £400 million plan will increase mental health and musculoskeletal support, and expand the individual placement and support scheme.

The Chancellor is also looking to double the funding for the small company subsidy pilot.

Disability benefits reform

Working from home has become easy, and with around 1 million job vacancies in the economy, there’s a hope that more people with disabilities will be able to work.

The reform will abolish the work capability assessment and separate benefit entitlement from an individual’s ability to work. This means that people with disabilities will be able to work without losing the financial support that they already receive.

In England and Wales, the Universal Support programme will be launched. This voluntary employment scheme for disabled people will grant £4,000 to help each disabled person find appropriate work and support, funding 50,000 places per year.

Childcare reforms

If we were to match Dutch levels of female participation in the workplace, there would be an additional 1 million women in the workforce.

To make this possible, childminder incentive payments of £600 will be offered to childminders who sign up to the profession — £1200 if they sign up through an agency.

Increased funding will also be paid to nurseries that provide free childcare by £204 million, rising to £288 million next year. More flexibility will be offered in terms of how nurseries operate, too, with an optional increase in minimum staff-to-children ratios, rising from 1:4 to 1:5 for 2-year-olds in England.

Any parents looking to move into work or increase their hours will have their childcare costs paid upfront by the government, with the maximum claim increasing to £951 for 1 child and £1630 for 2 children.

Wraparound care for school-aged children will increase so all parents of school-aged children can use extended drop-off and pick-up times.

In eligible households where all adults are working at least 16 hours a week, 30 hours of free childcare will be offered to every child over the age of 9 months who’s yet to start school.

Working parents of 2-year-olds can access 15 hours of free care from April 2024. That will be extended to all children aged 9 months and older from September 2024. Every working parent will receive access to 30 hours of free childcare per week from September 2025.

Good news for parents

“That is a positive for people, for those working hard trying to make their business work. They will at least have an incentive in terms of childcare.”

Help for middle-aged workers

The mid-life MOT strategy will offer more financial health and career guidance to those over 50 years old who wish to work past 65.

A new kind of apprenticeship will be targeted at the over 50s who want to return to work, named “Returnerships”. They will operate alongside skills boot camps and sector-based work academies.

Here’s what our expert has to say

“They are trying to get people who have taken early retirement that could easily work for another 10 or 15 years to fill the gap that we've got in employment. I think they are targeting doctors and consultants. They want to get them back in the NHS — after they’ve reached a level where it doesn't pay for them to continue to work and receive a pension, they just get taxed too heavily.”

Don’t Forget: Corporation Tax Is Set To Increase From 19% to a Maximum of 25% on 1 April

From 1 April 2023, corporation tax will increase from 19% for companies whose profits exceed £50,000 to a maximum of 25% for companies whose profits exceed £250,000. A system of marginal relief will apply between the two rates. Check out the government’s marginal relief calculator here.

Calculating your CT liability and marginal relief for profits between £50,000 and £250,000

Let’s say your company reaches an annual profit of £100,000.

Final Words

“It does feel that small business is taking the hit for any shortfalls here, there and everywhere. There is an offset, though. There are pension offsets to mitigate your corporation tax liabilities.

There's no increase in National Insurance rates, so employers won’t get hit harder. The taxable allowance is frozen, so there's no change in the amount we can earn tax-free.

Unfortunately, the dividend tax allowance drops to £1000, effective from 6 April. Next year, it'll drop to £500. It will be difficult for small businesses to argue whether it's better to take a salary or dividends, a once straightforward conversation — take a minimum salary and the rest in dividends. We will now, as accountants, need to do our sums to ensure that it is the right way to go.”

What Else Was Announced During the Spring Budget?

Unemployment due to rise

The unemployment rate is set to rise to 4.4%, less than the Autumn forecast, with 170,000 fewer people expected to be out of work. Still, we wouldn’t say that’s positive news.

Extending the energy price guarantee

Family finances will be benefited from the ongoing energy price guarantee remaining at £2,500 for the next three months. It is projected that energy prices will fall by July, until the average family will save a further £160 on top of the other energy support measures.

“Draught relief”

From 1 August, the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, as part of the new Brexit pubs guarantees. “British ale is warm, but the duty on a pint is frozen”. Great news for independent pub owners and their patrons.

Frozen duties for reduced inflation

The combined energy price guarantee, fuel duty, and duty on a pint all being frozen will reduce CPI inflation by nearly 0.75%.

More aid to Ukraine

A further £5 billion will be given to Ukraine over the next 2 years.

A higher defence budget

£11 billion is set to be added to the defence budget over the next 5 years, making up 2.25% of GDP in 2025.

A £30 million package will also be granted to the Office for Veterans, supporting veterans with injuries returning from service and increasing the availability of Veteran housing.

Audio-visual tax reliefs

An expenditure credit with a rate of 34% has been introduced for film, high-end television (with a qualifying threshold of £1 million) and video games, and 39% for the animation and children’s TV sectors.

Theatres, orchestras and museums can enjoy their current 45% and 50% reliefs for a further 2 years.

Extending the climate change agreement scheme

The Climate Change Agreement scheme has been extended for two years to allow eligible businesses £600 million of tax relief on energy efficiency measures.

Carbon-capture usage and storage support

Up to £20 billion of support will be given for the early development of CCUS, with projects across the UK. This could offer 50,000 jobs while also attracting private-sector investment.

Increasing nuclear capacity

Subject to consultation, nuclear power will be classed as environmentally sustainable, giving the sector access to the same investment opportunities and incentives as renewable energy. The state will also invest more in nuclear through Great British Nuclear.

The first competition for small modular reactors was also announced, which will be completed by the end of this year.