Chancellor Jeremy Hunt has announced what he calls the biggest tax cuts for business in modern British history in his Autumn Statement 2023.
Measures include slashing national insurance contributions for the employed and self-employed, extending the 75 per cent business rates discount for retail and hospitality businesses, and making the tax break for business investment permanent.
“Small businesses work so hard for us and the Conservative Party works hard for them,” Jeremy Hunt told the House of Commons.
Reacting to Chancellor’s Autumn Statement, Shevaun Haviland, director general of the BCC, said that smaller firms will be relieved to see a package of measures that alleviate the cashflow problems they face, such as continued business rates relief for hospitality, retail and leisure, and new rules to help them get paid on time.
However, Phil Foster, founder & CEO of energy broker Love Energy Savings, said the Autumn Statement 2023 has “not gone far enough for SMEs” and focused too heavily on backing big business.
Foster says: “The measures announced by the Chancellor will do little to keep many small businesses that I speak to on a day-to-day basis afloat in a high-wage, high inflation economy. While actions to address late payments and extending the business rates discount are welcome reforms, these do not address the main drivers of stress for business owners.”
Richard Godmon, tax partner at leading consultancy Menzies LLP, says that SMEs (“arguably the engine room of the economy”) were largely left out of the Autumn Statement with the exception of the freeze to the small business rates multiplier.
Said Godmon: “When it comes to the business environment, I’d give the Autumn Statement a six out of ten for the likely impact it will have on growth, investment and boosting productivity. I expect to see much more in the 2024 Spring Budget if the Government wants to go into the election with a stronger outlook.”
Autumn Statement 2023 for small businesses
Here are the headlines of the measures that Chancellor Jeremy Hunt has announced that will affect small businesses:
Jeremy Hunt has announced that he is cutting national insurance for more than 27 million people by 2 per cent in a move that will save a worker on the average £35,000 salary more than £450 a year.
The chancellor said that he would reduce the main rate of employee national insurance from 12 per cent on earnings to 10 per cent.
At present, employees earning more than £12,570 a year pay 12 per cent national insurance on their earnings up to £50,200.
Compulsory class two national insurance contributions for the self-employed will be abolished and class four national insurance contributions charged on profits of between £12,570 and £50,270 will be cut to 8 per cent, from 9 per cent.
The cuts will save the two million self-employed people in the UK £350 a year from April, the chancellor said.
Richard Maitland, partner at accountants MHA, points out that although the reductions in national insurance rates will put more money in the pockets of employees and the self-employed, the employer rate of NI is not being reduced and will stay at 13.8 per cent. Without any corresponding cut in employer NI, employers will continue to bear this “people cost” at the same level, says Maitland.
Maitland is also puzzled that for the entrepreneurial self-employed, the NI rate was only cut by 1 per cent not by 2 per cent as it was for employees. The self-employed have been handed an extra tax cut in that Class 2 NI has been abolished but that only gives them back £3.45 a week.
Business rates discount
The 75 per cent business rates discount for the retail, hospitality and leisure sectors will be extended by another year, Hunt announced.
Mr Hunt said: “Any small business will also tell you the biggest frustration is the tax you pay before making a penny of profit – not least business rates. This government has already taken a third of properties out of rates completely through Small Business Rates Relief. We have frozen the tax rate for the last three years at a cost of £14.5bn. We have removed downwards caps from Transitional Relief.
“And for retail, hospitality and leisure businesses we have introduced a one year 75 per cent discount on business rates up to £110,000. These measures have saved the average independent shop over £20,000. It is not possible to continue with temporary support measures forever. But whilst the standard multiplier, which applies to high-value properties, will rise in line with inflation, I have today decided that we will freeze the small business multiplier for a further year.
“And following extensive discussions with the FSB and many colleagues in the House, I have also decided to extend the 75 per cent business rates discount for retail, hospitality and leisure businesses for another year too.”
As predicted, the Chancellor has permanently extended “full expensing”, which allows companies to claim back up to 25p for every pound invested and which had been due to end in March 2026. The move will cost the Treasury about £10 billion a year. He said it would give Britain “one of the most generous tax reliefs anywhere in the world”.
Full expensing rewards firms for investing in their businesses by allowing them to claim back the cost of investments in IT and machinery in the year they were purchased, rather than spreading it across multiple tax years.
Neil Insull, corporate tax partner, at Blick Rothenberg, points out that the full expensing is really only for business and not small ones, as at least 80 per cent of businesses get full expensing through the Annual Investment Allowance.
And Ian West, head of technology at KPMG, points out that there was no increased tax relief on digital services. KPMG research recently calculated that a productivity boost from generative AI alone could add £31 billion of GDP to the UK economy.
West says: “Emerging technology can initially be expensive to use, so it was disappointing that an increase in tax relief for expenditure on digital services was not included in today’s Autumn Statement.
“Emerging technologies are often out of reach financially for small organisations. If businesses across the UK are not equally able to use innovative technologies, large organisations with greater resources will accelerate their market lead, resulting in potential digital inequality.”
Hunt replaces super deduction with new tax break – Among his announcements in the Spring Budget, the Chancellor has introduced full expensing, successor to the super deduction tax break
National Living Wage
As announced at the 2023 Tory Party Conference, the Living Wage for those aged over 21 will rise from £10.42 to £11.44 per hour. It will come into effect in spring 2024. The increase is worth £1,800 a year for the average full time worker.
Mike Randall, CEO of Simply Asset Finance, says, “The increase in National Living Wage is bound to be well received by workers across the country … However, for small businesses it’ll be yet another increase to overheads and present a tough balance for achieving growth alongside an increased payroll.”
Simon Rothenberg of accountants Blick Rothenberg agrees: “They have just spent 45 minutes talking about the importance of small business for growth and boosting them, and then he does not mention the impact on those businesses of the increase in national living wage. Many will actually have to make a decision to either cut numbers of people or increase prices (and further fuel inflation) – a very sensible and noble aim to increase minimum wage, but will it actually hurt in the long run?”
Hunt says three more investment zones will be established — what he calls “mini-Canary Wharfs”.
They will be in the West Midlands, East Midlands and Greater Manchester. Focused on advanced manufacturing, he claims that these will help garner about £3 billion in private investment and create 65,000 new jobs.
EIS and VAT
The sunset clauses on EIS and Venture Capital Trust (VCT) schemes will both be extended to 2035. A total of £18.2 billion has been raised through EIS over the last decade.
The two existing Research and Development (R&D) schemes – one for small businesses and the other for larger ones – will be merged into one single scheme. R&D tax credtis have been under scrutiny because of the number of “rogue claims” being made on behalf of businesses by advisers. In the 2021-22 financial year, £7.6 billion was claimed under the reliefs. Jim Harra, the chief executive of HMRC, said last month that the generosity of the relief had made it a “honeypot” for rogue advisers “helping people to make claims that are not compliant”.
Laurent Descout, CEO and Co-Founder of Neo, says: “SMEs must continue to be entitled to the highest rate of relief possible in a merged scheme. This is essential for the growth of start-ups, the economy and the UK’s reputation as a leading fintech and innovation hub.”
James Clough, CTO and Co-founder of Robin AI, adds: “A simplified R&D tax credit will be beneficial to both early-stage companies and those that are looking to scale. This decision particularly affects AI startups as high computing costs can make research within this sector a very capital-intensive exercise. Simplifying tax credits for deeptech and AI will be transformative for the sector and boost confidence for investors and founders alike.”
Any large company bidding for Government contracts will have to demonstrate they pay their invoices to small business suppliers within 55 days.
Alex von Schirmeister, UK managing director, Xero, thinks the Government needs to toughen up on this issue.
Says Von Schirmeister: “We needed to see more teeth shown on this issue, and more urgency. We wanted it to be a final warning to big businesses who sit on suppliers’ cash. Let them know it’s not a late payment, it’s unapproved debt.”
13:27pm: Surprise announcement that national insurance for the employed will be cut by 2 per cent from 12 per cent to 10 per cent, affecting 27 million people. This means that the person on an average salary of £35,000 will save £450 a year in contributions. The national insurance contribution will be cut from 6 January “so people can see the benefit in their payslips from the start of the year,” said Hunt.
According to the OBR, the measure will create 94,000 new jobs.
13:22pm: As expected, the National Living Wage will increase by 9.8 per cent to £11:44 an hour. Of course, this is paid by employers, not the Government.
13:15pm: Compulsory Class 2 National Insurance contributions for the self-employed to be abolished, saving £192 a year for the average self-employed person and cutting tax for two million self-employed. Voluntary Class 4 National Insurance contributions to be cut from 9 per cent to 8 per cent from April 2024, saving £350 a year for the average self-employed person.
“Small businesses work so hard for us and the Conservative Party works hard for them,” said Hunt.
13:11pm: Small business rates multiplier will be frozen for the coming year and the Chancellor has extended the 75 per cent business rates discount for independent retailers and hospitality for another year, at a total cost of £4.3 billion to the Treasury.
13:07pm: New enterprise zones to be created in West Midlands, East Midlands and Manchester, which, together will generate over £3 billion of private investment.
13:02pm: £500m to be invested over the next two years to help establish the UK as an artificial intelligence “powerhouse” as, Hunt says, AI will be at the heart of any future growth. The UK has the third-largest tech economy in the world. Taken together, all this support will attract an additional £2 billion of investment into Britain.
12:58pm: Pension fund reform including the establishment of a growth fund run by the British Business Bank.
New rules to encourage local authorities to fast-track business planning applications.
12:55pm: OBR predicts economy will grow by 0.7 per cent in 2024 and 1.4 per cent in 2025. Overall, the economy is 1.8 per cent larger than it was pre-pandemic.
12:39pm: Chancellor Jeremy Hunt stands up in the chamber to announce 110 growth measures, including making it easier to raise capital, cut business taxes, all of which will “remove barriers to investment” and will, according to the OBR, will increase GDP.
11:47am: Good morning and welcome to our live coverage of Chancellor Jeremy Hunt giving his Autumn Statement and how it affects small business. We will be covering the Chancellor’s statement as he delivers it this afternoon and update throughout with reaction from small business experts as it comes in.
…and what the Chancellor left out…
Tax-free personal allowance
One option under consideration was increasing the minimum threshold for employees to pay tax up from £12,500. The tax-free personal allowance has been frozen for six years, dragging millions into paying tax for the first time – so-called “fiscal drag”. Raising the minimum tax threshold from £11,850 to £12,500 in 2018 was seen as an incredibly positive thing to do for small businesses and their often low-paid staff.