This will be Jeremy Hunt’s second major fiscal statement and Budget announcement as Chancellor. Falling energy prices and higher-than-expected tax revenues mean that the outlook for Mr Hunt’s Spring Budget is less bleak than when he first presented the famous red briefcase outside Downing Street in November last year.
Indeed, the think tank, the Institute for Fiscal Studies, estimates that borrowing this year and next will be £30bn less than previously expected.
Despite this, the Chancellor is not widely expected to offer extensive tax cuts to business, due to the ongoing constraints on the public purse amid the current economic downturn. Accordingly, from April 2023, businesses will be facing the highest tax burden since the Labour government of the immediate post-war.
Against this backdrop, several business organisations have been vocal in their concerns about the difficult faced by smaller businesses in the UK. Their lobbying, alongside changes in prevailing circumstances, suggest the following areas impacting SMEs may be addressed in March’s update:
Energy
The Government announced the Energy Bill Relief Scheme last September, to help businesses with soaring energy bills. But it’s set to be replaced with the, less impactful, Energy Bills Discount Scheme from 1 April.
We may see some further support to help businesses with their energy bills announced in the Budget. It has been reported that the scheme for domestic customers may continue past April, but the Government has not yet indicated whether this will include non-domestic customers.
Talent and Employment
This budget has been trailed as the ‘back to work budget’ as the Government attempts to address the economically-challenging number of early retirees and wider ‘economically inactive’ within the population. Expect new schemes to be announced to incentivise employers and over 50s employees back into the workplace.
There may also be lifting of restrictions on overseas workers for those industries – such as Hospitality – that rely heavily on immigrant talent in their operations.
Technology and investment
The Treasury team are also understood to be looking at a successor to former Chancellor Rishi Sunak’s “super-deduction” tax incentive, a £25bn tax incentive which encouraged business investment by providing 25p off company tax bills for every pound of qualifying spend on technology, plant, and machinery.
The current scheme, which ends is March, is seen as vital to encouraging smaller businesses to innovate and fuel growth. Business groups including the CBI, IoD and Make UK, the trade body for manufacturers, are pressing for a replacement incentive that encourages businesses to invest in innovation and/ or sustainable initiatives.
This is even more important when you remember that the Government announced cuts to R&D tax credits for SMEs and start-ups in the Autumn Statement. Going forward, the R&D tax credit will be worth only 18.6p for every pound of R&D spend compared with the current 33.3p – changes that will cost SMEs £4.5bn in lost tax benefits over the first five years of the new system.
However, the Chancellor has said he is open to reforming the system again in 2024/5 and something may be announced in the Spring Budget.
Technology and investment
From April 2023 onwards, the main rate of Corporation Tax will rise from 19% to 25%. Although the current 19% rate will still apply if your profits are £50,000 or less, your company will pay more tax on profits above this level.
At a time when the UK is seemingly finding it hard to compete on the international stage, there is some speculation that future rates may form part of the announcement. The Chancellor may announce a reduction in future rates in a bid to bring business certainty and encourage inward investment in the UK.
Whatever is announced on March 15th, we understand that doing business is proving incredibly challenging for many SMEs at the moment. At Capify, we understand the unique challenges faced by SME owners and support our customers through the peaks and troughs of each economic cycle.
Find out whether your business might need external finance to support your ambitions here
