Inflation is predicted to rise to 8.7% later this year. Amid this backdrop, and with increasing living costs, not to mention energy price hikes and unprecedented fuel prices, businesses were eager to hear Sunak’s announcement on Thursday 24th March.
In a nutshell
Several headline measures were announced in the Spring Budget, most notably:
- Increasing the National Insurance threshold to £12,570
- Corporation Tax main rate remains unchanged but start planning ahead for the 1 April 2023 increase
- Super-deduction capital allowance of plant and machinery continues until March 2023
- Reiteration of the temporary 50% reduction in business rates for the retail, hospitality and leisure sectors (available for up to £110,000)
- An increase in the employment allowance from £4,000 to £5,000
- A pledge to reduce the basic rate of income tax to 19% before the end of this parliament
- A 5p per litre reduction in fuel duty
Whilst these government measures were primarily aimed at supporting individuals and consumers, some will undoubtedly impact business in the UK, particularly in the case of smaller businesses.
Impact on smaller businesses
This is certainly the case regarding the employment allowance increase. The existing allowance is available to businesses where Class 1 National Insurance contributions fall below £100,000 in the previous tax year. The increase of the allowance to £5000 equates to a £1000 tax cut for those small businesses with a Class 1 National Insurance liability above this amount. This, however, offers no support to the 5.3 million micro businesses in the UK today, which make up 95% of all commerce, whose lower N.I liability will fall below the threshold.
Despite the hope that N.I contribution increases would be delayed given the current climate, only a rise in the threshold to £12,570 was introduced, starting in July. This means businesses will pay less for employees earning under £34,000 but will still pay more for those with a higher salary.
Also from 1 April 2022, Corporation Tax main rate will stay at 19% for the current financial Year, however from 1 April 2023, the main rate will be increased to 25% applying to profits over £250,000, whilst a 19% small profits rate will be maintained for companies with profits of £50,000 or less. Companies with profits in between will pay at 25% less some marginal relief. These rates apply on a group basis and so need to be divided by the number of active companies in a group to determine the profit levels at which the tax applies – 2 companies, which is common with small companies, will mean the rate thresholds start at £25,000 and £125,000.
In addition, companies looking to invest in assets (between 1 April 2021 until 31 March 2023) will be able to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments and will be eligible for a 50% first-year allowance for qualifying special rate assets. This super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
But it is the rising cost of fuel has been a particular concern for many businesses and whilst the 5p a litre reduction in duty will soften the blow, the current rate at which prices are rising means this fuel duty reduction will likely have little or no impact.
The future looks green
But it is arguably energy prices that have most negatively impacted many businesses and sought them to find lower energy, sustainable solutions. The Green Business Rate relief planned for next year was brought forward to April 2022 by Sunak in the Spring Budget and should hopefully help many businesses install low-carbon technologies more affordably.
And so, the future looks greener than it does rosy following the Spring Budget announcement. With growth predictions reduced from the 6% predicted in the October 2021 budget to now just 3.8%, the outlook for UK business is challenging to say the least. Cash flow, scenario planning and modelling, alongside good old-fashioned finance control will be imperative for businesses to ride the times.
The underlying challenge for many SMEs is understanding the “cocktail effect” of these changes on their specific business, their specific operating model, and their specific cash flow dynamics. Liability or opportunity – often, only a financial expert can truly tell. This is where EFM can help.
Contact us today to see how our nationwide team of Finance Directors, Business Advisors and Financial Controllers can offer ‘pay as you go’ financial management services to help your business grow and overcome the current challenges.