A raft of new rules mean that SMEs must tighten belts – again.
Chancellor Jeremy Hunt’s Autumn Statement promises pain for SMEs across the country.
In the face of rising energy bills, inflation, Brexit and customers squeezed by the cost of living, there was little to be cheerful about in the Statement with revenue being squeezed out of taxpayers – particularly businesses.
In this article, I’m going to look at the four main areas that I think have been most affected by the new and changing rules: tax, innovation, investment and the cost of doing business.
The big news is that corporation tax will be increasing for businesses with a profit of more than £50,000.
The rate will increase incrementally from 19 percent to 25 percent up to £250,000.
With 70 percent of actively trading companies making profits of £50,000 or less, Corporation Tax remains at 19 percent. This gives a clear incentive to business owners to keep their profits below this figure.
VAT has been frozen with the Chancellor’s promise that VAT will not change until 2026. But with inflation, prices are going up, so more businesses will find themselves liable for VAT (calculated by turnover rather than profit) than before. Additionally, rising prices raises the VAT burden on goods and services. Non-VAT registered businesses will see the price of supplies and services rising with no way to claim the tax back. This will impact cashflow and profitability for the smaller businesses and many sole traders.
There is some good news around business rates as the planned revaluation of business properties for business rates purposes will go ahead as planned in 2023, but to “soften the blow” a package of £13.6 billion over five years will help businesses to transition to their new bills.
Business rates multipliers will be frozen in 2023-24 at 49.9p and 51.2p, instead of the planned increases of 52.9p and 54.2p. The government said this means bills will be six percent lower than without the freeze, before any reliefs are applied.
The changes here feel particularly personal as Swoop has invested a lot of time and money into R&D to build our platform. One of the chief attractions for doing so was the government’s R&D Tax Credit scheme.
In response to reports of abuse and fraud in the scheme, Hunt has announced a cut in the enhancement rate to 86 percent (from 130 percent) and the tax credit rate to 10 percent (from 14.5 percent). For the RDEC scheme, the rate will increase from 13 percent to 20 percent.
This change alone looks set to cost Swoop £300,000. And while we would agree that fraudulent claims should be cracked down on (and millions are being poured into rooting out fraud across the whole tax system), this move looks like taking the ball away from everyone. The changes will make R&D less attractive to what is traditionally the UK’s most innovative and agile sector.
One of the positive stories to come out of the last budget was the change in threshold of the SEIS and EIS programs. For SEIS, the amount a company can raise is increasing from £150k to £250k and an individual investor can invest £200k rather than the previous limit of £100k. These new rules come into effect in April 2023 but if a business is looking to avail of the additional allowance before then, they will need to put an advanced subscription agreement in place.
These are tax efficient vehicles for investors to buy equity in growing companies and the hope was that with an expansion of the schemes, there would be more opportunities for businesses to sell shares.
Cost of doing business
Business owners will be hit by the National Living Wage rising 9.7 percent to £10.42 per hour. For many businesses the wage bill is their biggest outgoing, which puts a further squeeze on company profits.
Energy support from the government will continue in 2023, but households will face a higher cap of £3,000 per year (up £500). Pensioners and those on disability and means-tested benefits will also receive extra one-off lump sums. But businesses will only receive “targeted” support in 2023 – meaning some will get it and some won’t.
The short term caps on energy costs show that the government is adopting a “wait and see” approach to energy as the situation will likely change when things settle down in Ukraine.
There are no two ways about it, the UK’s SMEs are going to be hit hard by these changes. How can businesses minimise the amount of tax they pay? For many, keeping profit under the £50,000 level will be the goal.
Avoiding VAT at a time of rising prices may be harder.
Businesses should also look at whether the innovation that gives them the edge can be done more cost effectively elsewhere. There may also need to be staff cutbacks to see businesses survive.
The limited amount of government help should be something that every business investigates: this government is determined to get all they can out of SMEs, so if there is any help flowing back in the other direction, make sure you are getting it.
To fill the hole that’s been blown in the budget, the Chancellor is being ruthless in squeezing small businesses. We must make sure we are approaching our finances with the same attitude.
If you’d like to know more about what the Autumn Statement will mean for you and your business, read the blog here: https://swoopfunding.com/uk/blog/autumn-statement-jeremy-hunts-plan-to-plug-the-gaps-in-the-uks-finances/