What Does the Emergency Budget Mean for Your Business – and What Do You Need to Do Now?

Chancellor Kwarteng’s emergency budget – the Government has labelled it “The Growth Plan” – has certainly raised eyebrows, with its low-tax agenda fuelled by borrowing.

But go beyond the shock of the new for the moment, and what emerges is actually an interesting approach with plenty in it to benefit businesses directly, as well as their employees.

So, what’s changed – and is it all for the better?

You’ll keep more of your profits

Whilst news of bankers’ bonuses has caused a stir, Corporation Tax is in many ways the headline business act in the new budget for SMEs. It will now remain at the main rate (which most small and medium enterprises pay) of 19%, with the planned increase to 25% cancelled. This means many businesses will get to keep more of the profits that they earn – an important stance in the face of a coming recession.

Employees will cost you less – and take home more

The 1.25% National Insurance (NI) increase that was introduced in April 2022, and that proved to be such a massive bone of political contention, will now also be reversed, from 6 November 2022. This means your business will pay away less to HMRC per employee (assuming they’re eligible for National Insurance contributions) and those same employees will themselves pay less NI, and so keep more of their earnings.

In addition, bringing forward the 1 percentage point cut to the basic rate of Income Tax to April 2023 – accompanied by reductions to the dividend tax rate, which are good news for SME owners who pay themselves dividends instead of or in addition to a salary – means this budget has its eye firmly on personal earning potential at a time when household budgets are being squeezed from all sides.

Allowances and tax relief are on the up

The Annual Investment Allowance (AIA), which enables you to deduct 100% of the cost of equipment, machinery, and tools from your profits, and so reduce your tax liability, will now not revert to its pre-pandemic level of £200,000, as was originally planned, but stay at £1 million. Again, that’s more of your profits in your coffers, rather than in HMRC’s.

At the same time, the introduction of new investment zones around the UK will result in enhanced tax reliefs for Stamp Duty Land Tax (SDLT), Enhanced Capital Allowances, Structures and Buildings Allowance, and Employer National Insurance contributions, taking the tax relief agenda even further.

A kick-start if you’re a start-up

Getting higher levels of funding into start-ups, and quicker, is a clear priority in this budget.

From 6 April 2023, this will be good news for entrepreneurs, who will see the Seed Enterprise Investment Scheme (SEIS) limit for individual investors doubled to £200,000 and the gross asset limit increased to £350,000, mirrored by an increase in the overall amount businesses can now raise for investment within SEIS, from £150,000 to £250,000.

The latter significantly improves the investment horizon for small companies, as many such businesses built plans around a first raise of £150,000. when history has in fact shown they needed more.

The investors themselves will also benefit from easier ways to claim tax relief on their investment, so it’s favourable for them, too.

Contracting and outsourcing: costs and complexity cut

For those who work as self-employed contractors, the budget brings a welcome promise to repeal reforms to IR35 legislation that had placed the assessment of contractors’ tax status in the hiring organisation’s hands and created massive administrative overheads for both the contractors and the businesses that use their services.

It is anticipated (although no categorical statement has yet been issued on this by the Government) that all IR35 status decisions will revert to the contractors themselves from April 2023, as reported here in Contractoruk.com.

Greater reward for your employees

Rewarding your employees is key to retaining them and ensuring a stable base for business growth. The budget’s changes to the Company Share Option plan (CSOP) scheme (an alternative for businesses too big for EMI shares, or not eligible for them under trade criteria) appear to acknowledge this.

They increase the employee share option limit from £30,000 to £60,000 and remove a condition that limits the types of shares eligible for inclusion within this scheme, with both changes due to take effect from 6 April 2023.

Is it all upside?

On the face of it, this is very much a budget focused on business growth and employee benefit, but it is not without its risks.

In particular, for companies that buy and sell in large volumes in US dollars, the impact of the budget on exchange rates is already being felt, and just how this might play out in terms of inflation and rising interest rates longer-term is, as yet, an unknown.

There’s also a certain vagueness in the detail in places that the Government must work quickly to clarify if businesses are to understand and grasp the opportunities the budget offers.

Where will the new investment zones be, for example? Exactly how (and to the tune of how much) will they “enhance” the reliefs and benefits available? And will the reforms to IR35 really be retracted so completely, given that there is only, for the moment, a statement of intent to do this, not a firm commitment?

On the latter point, there is additional concern afoot,  because it is thought in some well-informed circles that whilst the tax basis and status process may change for the better, companies may stick with the devil they’d prepared for, and continue either to not hire contractors, or do so through payroll.

There’s also some bet-hedging going on around electricity prices, with the (welcome) announcement of price reductions through the Energy Price Relief Scheme from 1st October somewhat dampened by the fact that the reduction will only be in place for six months, until the end of March 2023.

However, there will be, additionally, a review after three months to consider targeted support for those businesses most in need, so extensions might be in scope – but this is far from certain.

What do you need to do next?

The changes in legislation will of course take effect without any action on your part, but you need to be in a position to thoroughly understand what effect they will have on your planning and forecasting outcomes (not least because if you don’t, you risk missing out on opportunities to capitalise on them effectively).

What does the budget mean for your cash-flow? Balances? Investment strategy? Tax-efficiency? Growth targets? And does your team have the resources and expertise to model all this accurately, particularly when the changes are so extensive compared to budgets they’ve seen before?

For more information on how you can use EFM’s team of Finance and business management experts on a pay-as-you-go basis to help your business get the most from what the Chancellor’s new budget makes possible, get in touch today.

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