What does the latest budget announcement mean for small businesses?

In the recent Spring Budget announcement on the 15^th of March, Jeremy Hunt unveiled the UK government’s spending plans, in which he covered many key points that small businesses need to be aware of, from corporation tax changes to the Energy Price Cap.

Corporation tax increase

One of the main headlines from the Spring Budget is the corporation tax increase, which will be 25% from 1^st of April, up from 19%. This corporation tax hike was initially introduced by Rishi Sunak in March 2021, but had been blocked for a while, but Hunt has now picked it up again and is implementing it as Sunak planned.

This corporation tax rate increase will apply to companies with profits above £250,000, while small companies with profits of £50,000 or less will keep paying 19%. Meanwhile, there is a marginal relief rate that will provide a taper for businesses whose profits are between £50,000-£250,000.

The Treasury assures that 70% of companies won’t be affected by this change and will continue paying the 19% rate. However, there are still lingering concerns that the higher tax rate will discourage investment.

Energy Price Cap Increase

It has also been announced that the energy bill price cap is still set to increase in April 2023, and businesses will receive a discount on wholesale gas and electricity prices instead, rather than a fixed price, with the Energy Bills Discount Scheme (EBDS) starting on the 1^st of April 2023, running until the end of March 2024.

What is the Energy Bills Discount Scheme and what is it replacing?

The EBDS will be replacing the Energy Bills Relief Scheme (EBRS) on April 1^st 2023, representing a cut from the £18bn that the EBRS was worth to the EBDS cap at £5.5bn. This scheme will offer businesses a discount on each unit of gas and electricity they use, up to a maximum discount.

The relative discount will apply if wholesale prices rise above a certain price threshold. For the majority of businesses, these are:

• Gas - £19.61 per megawatt hour (MWh) with £302 per MWh as the price threshold.
• Electricity – £6.97 per MWh with a price threshold of £107 MWh
  

There will be more support, however, for energy-intensive and trade-intensive industries, in which the max discount will be £89 per MWh with a price threshold of £185 per MWh for electricity, and £40 per MWh with a £99 per MWh threshold for gas.

Eligibility for the Energy Bills Discount Scheme depends on certain criteria. Eligible businesses are:

• On fixed-price contracts that were agreed on or after 1^st of December 2021
• On deemed or out of rate contracts, or standard variable tariffs
• Signing new fixed price tariffs
• On variable ‘Day Ahead Index’ tariffs – Northern Ireland scheme only
• On flexible purchase or similar contracts

Difference between the EBRS and the new EBDS

The Federation of Small Business gives the example of a pub that uses 48,000 KwH in electricity and 192,000 KwH in gas on a contract they signed last August. Under the current EBRS scheme, they are only paying £24,528 per year. Under the new EBDS scheme, they’ll be paying £82,539 a year. This is because, through the EBRS, the café receives £60,000 relief on the estimated £85,000 bill, but the new scheme will be offering just over £2,000 in support.

Meanwhile, households will continue benefiting from the Energy Price Guarantee which has been extended for a further 3 months, saving a typical household £160 per month until June. Whilst this is good news for the average household, small businesses will be missing out on that help and could struggle with the price cap increase, despite the Energy Bills Discount Scheme being introduced, which is an overall less generous scheme.

Full expense

On 31^st of March 2023, the ‘super deduction’ scheme, which benefitted businesses by offering 130% tax relief on their purchases of equipment, will come to an end.

To replace this scheme will be ‘full expensing’, which allows companies to write off all qualifying capital expenditure against their taxable profits in the year that it’s incurred. It does, however, retain the targeting of the super deduction, in that it will not apply to purchases of second-hand equipment, and applies at a rate of 50% to long-life assets.

The Chancellor stated that full expensing will remain in place for three years, but questions have been raised regarding how much this could counter the corporation tax increase. Firstly, full expensing is a temporary implementation, whilst the tax hike is permanent. Secondly, it has been brought in to replace the super deduction, which was more beneficial to businesses as it provided 130% tax relief.

So, despite the intended help by introducing full expensing, the tax burden is on course for a 70-year high, with small business rates also set to go up on the 1^st of April.

Investment Zone Scheme

The recent Budget announcement also informed people about the new investment zone scheme, which aims to encourage business investment across England and create new jobs in certain areas. Providing £80m of funding to each of the eight locations across the country, each region will have money to put towards skills, infrastructure, business rates retention, and tax reliefs.

The eight locations that the investment zone scheme covers will be:

• South Yorkshire
• West Yorkshire
• Teeside
• Liverpool
• East Midlands
• West Midlands
• Greater Manchester
• North East

There will also be at least one investment zone each in Scotland, Northern Ireland, and Wales.

The thinking behind this initiative is that it will encourage business investment and boost the local economies in these particular regions, which have been historically underserved and somewhat neglected.

More opportunities for the Over 50s

The government have also announced that it will expand the Skills Bootcamps program for the over 50s. People of this age category will benefit from more useful training in sector-based skills as part of a 16-week free training course, and the promise of a job interview at the end.

It has also been announced that an additional 8,000 Skills Bootcamp places will be available in England, alongside 40,000 new Sector-Based Work Academy Programme placements across 2023-24 and 2024-5 in England and Scotland, providing people of all ages the chance to upskill and find new job opportunities.

These over 50s ‘returnships’ will help to fill some job vacancies, which will be warmly welcomed after many business groups have been pushing for more support for the over 50s for a long while now, and this new initiative will give them new skills and improve their employability.

What are your thoughts on the latest budget announcements for business? Drop us an email at james.lawson@myhrtoolkit.com, we’d love to hear your thoughts!