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What the Government’s mini budget means for SMEs

Business News

What the Government’s mini budget means for SMEs

Updated: 18 October 2022

On Friday 23rd September, the then Chancellor, Kwasi Kwartang, unveiled his mini budget to ‘deliver growth for the economy’. However, following a reaction from the markets, Kwartang was sacked on Friday 14th October and replaced by new Chancellor,  Jeremy Hunt.

Then, on Monday 17th October, Mr Hunt gave a statement on some of the changes that would be made to the previously-announced mini budget. Here we take a look at both the initial announcement, what’s changed since then and how it will affect businesses in the months to come.

New support coming for business energy bills

What was announced:

The Government announced the Energy Bill Relief Scheme (EBRS), which aims to provide businesses with support to tackle rising energy bills. Beginning on 1st October 2022, it offers discounted gas and electricity unit prices for those on non-domestic contracts. 

To be eligible for the support, your business should be:

  • On a fixed price contract, agreed on or after 1st April 2022
  • Signing a new fixed price contract
  • On deemed/out of contract or variable tariffs
  • On flexible purchase or similar contracts

The Government calculates the discount based on wholesale costs of energy this winter, versus a government-backed price. This government-backed price is:

  • £211 per megawatt hour (MWh) for electricity
  • £75 per MWh for gas

To help businesses understand the support they’re getting, the Government has provided an example of a pub that uses 4 MWh of electricity and 16 MWh of gas a month. They signed a new fixed price contract in August 2022 with monthly energy costs at £7,000.

Since wholesale prices were higher than the government-supported price when they took out their fixed price contract, the pub will receive a discount from 1st October 2022. The difference between the wholesale price and the government-backed price is worth £380 MWh for electricity and £100 MWh for gas, so the pub will get a discount of around £3,100 a month, reducing bills by over 40%.

For those on variable, deemed and all other contracts, the discount is still based on the difference between the government-supported and wholesale prices, but there will be a maximum discount applied. This maximum discount is £345/MWh for electricity and £91/MWh for gas.

Businesses don’t need to apply to claim the support on offer — it’ll be automatically applied to your bills and you should start seeing a discount from November 2022.

What’s changed:

Originally, this support was to last 2 years. However, Mr Hunt, confirmed that this support would stay in place until April 2023, at which point there will be a treasury-led review to determine how the Government can support with energy past this date.

Upcoming rise in Corporation Tax to go ahead

What was announced:

Corporation Tax was due to rise from 19% to 25% from April 2023. But Mr Kwarteng announced this would be scrapped and current rates frozen.

What’s changed:

Mr Hunt has reversed this, and the upcoming rise will still go ahead. Corporation Tax will now rise to 25% from April 2023.

National Insurance contributions are being cut

What was announced:

National Insurance contributions are to be cut by 1.25%, returning them to the levels before the new Health and Social Care Levy was introduced. This will come into effect on 6th November 2022.

For business owners who are self-employed, this will mean that you’ll be able to keep more of the salary you pay yourself. 

In addition, for businesses that employ staff, the Employment Allowance increase from April 2022 hasn’t been cancelled. This means that businesses with National Insurance contributions of less than £10,000 can claim back up to £5,000 (which is up from £4,000 previously before April 2022).

The Government outlines that this Employment Allowance increase, combined with the cancelled Health and Social Care Levy, will mean 40% of businesses won’t pay any National Insurance contributions as of 6th November 2022.

What has changed:

Nothing – Mr Hunt is keeping this policy in its current form. 

Income tax reductions no longer going ahead

What was announced:

The planned income tax reduction was to come into effect from April 2023, and would’ve seen the basic rate of income tax reduced from 20% to 19%.

At the same time,  the 45% tax band for people who earn over £150,000 would be abolished.

What has changed:

Neither of these will now go ahead. Mr Hunt has said, while cutting tax is still a principle they hold, it won’t be possible in the current climate and these tax bands will stay as they are for the foreseeable.  

IR35 reforms are to stay

What was announced:

Back in 2021, responsibility for working out IR35 status was shifted from contractor to client for medium and large-sized businesses in the private sector. It mirrored a change in public sector reforms that were introduced in 2017.

These were to be scrapped as the Government felt they had ‘added unnecessary complexity and cost for many businesses’. 

What has changed:

Mr Hunt has now confirmed that these IR35 reforms will remain in place.

Cuts to Dividends Tax have been reversed

What was announced:

In April 2022, dividend tax bands were increased by 1.25%, to match the additional 1.25% increase in National Insurance contributions. 

These increases were due to be reversed, reverting dividend tax rates to 7.5%, 32.5% and 38.1%. 

What’s changed:

Mr Hunt has now confirmed that the cuts to dividend tax rates will not be going ahead. Dividend tax rates will remain at 8.75%, 33.75% and 39.35%.

Annual Investment Allowance (AIA) higher rate has been made permanent

What was announced:

In January 2019, the Annual Investment Allowance (AIA) was temporarily raised from £200,000 to £1 million. It’s been extended several times since, but this was due to end at the end of the 2022/23 tax year.

Following the mini budget, this £1 million allowance will now continue permanently.

AIA is a form of capital allowance that allows organisations to offset the cost of plant and machinery investments against their tax bills, and it’s available in addition to the standard capital allowance main and special pool rates.

What has changed:

Nothing so far — Mr Hunt didn’t mention the AIA higher rate in his statement.

New investment zones across the UK have been announced

What was announced:

Plans for new investment zones were announced in the mini budget as well. These will see up to 38 local authorities create zones that provide extremely generous tax cuts to startup businesses willing to have their premises within these zones.

Benefits include:

  • 100% relief on business rates on newly occupied or expanded business premises
  • 100% enhanced capital allowance relief for plans and machinery for the first year
  • Zero-rate Class 1 employer National Insurance Contributions on salaries for new employees who are paid up to £50,270
  • No stamp duty on land bought for commercial or residential development
  • Enhanced Structures and Buildings Allowance relief of 20% per year

These benefits only apply to businesses with a premises in the zone, and only to the premises located within that zone, if a business has multiple premises.

What has changed:

Nothing so far — Mr Hunt didn’t mention these new investment zones in his statement.

New VAT-free shopping scheme for non-UK visitors has been scrapped

What was announced:

A new digital, VAT-free shopping scheme was to be introduced for non-UK visitors. It would’ve allowed non-UK visitors to obtain a VAT refund on goods bought in the high street, airports and other departure points, and be exported from the UK in their personal baggage.

What has changed:

Mr Hunt has decided to scrap this new shopping scheme. The Government claims this will save around £2 billion a year.

Alcohol duty rate freeze has been reversed

What was announced:

Alcohol duty rates were due to be frozen from 1st February 2023 for a year. The freeze was meant to save consumers from a planned increase of 7p on a pint of beer, 38p on a bottle of wine and £1.35 on bottled spirits.

What has changed:

Mr Hunt has reversed the alcohol duty freeze, and the planned increases to alcohol duty rates will go ahead. The Government claims this will save £600 million a year.

The next steps in the Alcohol Duty Review announced in the Government’s Growth Plan 2022 will proceed as planned.

Updates to the Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plan (CSOP)

What was announced:

The Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plan (CSOP) also saw some changes in this budget.

SEIS allows startups and entrepreneurs to source early stage funding. Thanks to the latest changes, from April 2023, businesses will be able to raise up to £250,000 of SEIS investment, and the gross asset limit is to be increased to £350,000 (and the age limit raised to 3 years). In addition, the annual investor limit is to be doubled to £200,000.

Businesses that use CSOP will now be able to issue up to £60,000 of tax-advantaged share options to employees. This is double the current limit of £30,000.

What has changed:

Nothing so far — Mr Hunt didn’t mention these schemes in his statement.

Transport and infrastructure projects are to be prioritised and accelerated

What was announced:

There was also an update on transport and infrastructure projects as well. In its Growth Plan 2022, the Government provides a long list of projects that will be prioritised and accelerated, including highways, rail and local transport. The plan aims to get the majority of those listed starting construction by the end of 2023.

It lists 86 highway projects, many of which are in the current Road Investment Strategy. Some notable examples include the A303 at Stonehenge, which currently lacks planning permission, as well as the A428 Black Cat scheme, which has development consent but is already suffering significant delays.

What has changed:

Nothing so far — Mr Hunt didn’t mention transport and infrastructure projects in his statement.

17/10/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice. 

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